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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file
number 811-04041
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GE INVESTMENTS FUNDS, INC.
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(Exact name of registrant as specified in charter)
3001, SUMMER STREET,STAMFORD, CONNECTICUT, 06905
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(Address of principal executive offices) (Zip code)
GE ASSET MANAGEMENT INC,3001, SUMMER STREET,STAMFORD,CONNECTICUT, 06905
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(Name and address of agent for service)
Registrant"s telephone number, including area code: 800-242-0134
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Date of fiscal year end: 12/31
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Date of reporting period: : 12/31/09
-------------------------
<page>
ITEM 1. REPORTS TO STOCKHOLDERS.
GE Investments Funds, Inc.
Income Fund
Annual Report
December 31, 2009
[LOGO] GE
GE Investments Funds, Inc.
Income Fund Contents
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NOTES TO PERFORMANCE.................................... 1
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS.............. 2
NOTES TO SCHEDULE OF INVESTMENTS........................ 13
FINANCIAL STATEMENTS
Financial Highlights................................. 14
Statement of Assets and Liabilities.................. 15
Statement of Operations.............................. 16
Statements of Changes in Net Assets.................. 17
Notes to Financial Statements........................ 18
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. 27
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL........... 28
ADDITIONAL INFORMATION.................................. 31
INVESTMENT TEAM......................................... 34
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
Notes to Performance December 31, 2009
- ---------------------------------------------------------------------
Information on the following performance pages relating to the GE Investments
Income Fund one year total return and Schedule of Investments is audited. All
other information, including the portfolio manager Q&A pages, is unaudited.
Total returns take into account changes in share price and assume reinvestment
of all dividends and capital gains distributions, if any. Total returns shown
are net of Fund expenses but do not reflect fees and charges associated with
the variable contracts such as administrative fees, account charges and
surrender charges, which, if reflected, would reduce the Fund's total returns
for all periods shown. The performance data quoted represent past performance;
past performance does not guarantee future results.
Investment return and principal value will fluctuate so your shares, when
redeemed, may be worth more or less than their original cost. Current
performance may be higher or lower than the performance data quoted. Periods
less than one year are not annualized. Please call 800-493-3042 or visit the
Fund's website at http://www.geam.com for the most recent month-end performance
data.
An investment in a Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency. An investment in a Fund is subject to risk, including
possible loss of principal invested.
The Barclays Capital U.S. Aggregate Bond Index is an unmanaged index and does
not reflect the actual cost of investing in the instruments that comprise the
index.
The Barclays Capital U.S. Aggregate Bond Index is a market value-weighted index
of taxable investment-grade debt issues, including government, corporate,
asset-backed and mortgage-backed securities, with maturities of one year or
more. This index is designed to represent the performance of the U.S.
investment-grade first rate bond market. The results shown for the foregoing
index assume the reinvestment of net dividends or interest.
The peer universe of the underlying annuity funds used in our peer group
average return calculation is based on the blend of Morningstar peer
categories, as shown. Morningstar is an independent mutual fund rating service.
A Fund's performance may be compared to or ranked within a universe of mutual
funds with investment objectives and policies similar but not necessarily
identical to the Fund's.
(C)2009 Morningstar, Inc. All Rights Reserved. The information contained
herein: (1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is no warranted to be accurate, complete
or timely. Neither Morningstar nor its content providers are responsible for
any damage or losses relating from any use of this information. Past
performance is no guarantee or future results.
- --------------
GE INVESTMENT DISTRIBUTORS, INC., MEMBER OF FINRA & SIPC, IS THE PRINCIPAL
UNDERWRITER AND DISTRIBUTOR OF THE GE INVESTMENT FUNDS, INC. AND A WHOLLY OWNED
SUBSIDIARY OF GE ASSET MANAGEMENT INCORPORATED, THE INVESTMENT ADVISER OF THE
FUND.
1
Income Fund
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[PHOTO] Paul M. Colonna
PAUL M. COLONNA
THE INCOME FUND IS MANAGED BY A TEAM OF PORTFOLIO MANAGERS THAT INCLUDES PAUL
M. COLONNA, WILLIAM M. HEALEY, MARK H. JOHNSON AND VITA MARIE PIKE. AS LEAD
PORTFOLIO MANAGER FOR THE INCOME FUND, MR. COLONNA IS VESTED WITH OVERSIGHT
AUTHORITY. EACH PORTFOLIO MANAGER IS ASSIGNED A CLASS OF ASSETS, THE SIZE OF
WHICH ARE DETERMINED BY TEAM CONSENSUS AND ADJUSTED ON A MONTHLY BASIS, IF
NECESSARY. ALTHOUGH EACH PORTFOLIO MANAGER MANAGES HIS OR HER ASSET CLASS
INDEPENDENT OF THE OTHER TEAM MEMBERS, THE TEAM IS HIGHLY COLLABORATIVE AND
COMMUNICATIVE.
PAUL M. COLONNA IS THE PRESIDENT AND CHIEF INVESTMENT OFFICER -- FIXED INCOME
AND A DIRECTOR AT GE ASSET MANAGEMENT. SINCE JANUARY 2005, HE HAS LED THE TEAM
OF PORTFOLIO MANAGERS FOR THE INCOME FUND. PRIOR TO JOINING GE ASSET MANAGEMENT
IN FEBRUARY 2000, MR. COLONNA WAS A SENIOR PORTFOLIO MANAGER WITH THE FEDERAL
HOME LOAN MORTGAGE CORPORATION, OVERSEEING THE MORTGAGE INVESTMENT GROUP.
WILLIAM M. HEALEY IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS
SERVED ON THE PORTFOLIO MANAGEMENT TEAM FOR THE INCOME FUND SINCE SEPTEMBER
1997. PRIOR TO JOINING GE ASSET MANAGEMENT, MR. HEALEY SPENT OVER 10 YEARS IN
THE FIXED INCOME GROUP AT METLIFE.
MARK H. JOHNSON IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT AND SENIOR
PORTFOLIO MANAGER OF STRUCTURED PRODUCTS. HE HAS BEEN A MEMBER OF THE PORTFOLIO
MANAGEMENT TEAM FOR THE INCOME FUND SINCE SEPTEMBER 2007. MR. JOHNSON JOINED GE
ELECTRIC COMPANY (GE) IN 1998 IN ITS EMPLOYERS REINSURANCE CORPORATION AS A
TAXABLE INCOME PORTFOLIO MANAGER. MR. JOHNSON JOINED GE ASSET MANAGEMENT AS A
VICE PRESIDENT AND PORTFOLIO MANAGER IN 2002 AND BECAME A SENIOR VICE PRESIDENT
AND SENIOR PORTFOLIO MANAGER OF STRUCTURED PRODUCTS IN 2007.
VITA MARIE PIKE IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. SHE HAS
SERVED ON THE PORTFOLIO MANAGEMENT TEAM FOR THE INCOME FUND SINCE JUNE 2004.
PRIOR TO JOINING GE ASSET MANAGEMENT IN JANUARY 2001, SHE WAS WITH ALLIANCE
CAPITAL FOR OVER NINE YEARS SERVING IN A NUMBER OF DIFFERENT CAPACITIES
INCLUDING PORTFOLIO MANAGER.
Q. HOW DID THE INCOME FUND PERFORM COMPARED TO ITS BENCHMARK AND MORNINGSTAR
PEER GROUP FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2009?
A. For the twelve-month period ended December 31, 2009, the Income Fund
returned 7.88% for Class 1 shares and 7.43% for Class 4 shares. The Barclays
Capital U.S. Aggregate Bond Index, the Fund's benchmark, returned 5.93% and
the Fund's Morningstar peer group of 209 US Insurance Intermediate-Term Bond
funds returned an average of 14.18% for the same period.
Q. DESCRIBE WHAT HAPPENED IN THE U.S. ECONOMY DURING THE TWELVE-MONTH PERIOD
ENDED DECEMBER 31, 2009.
A. Financial markets rallied strongly beginning in March 2009 as policymakers
around the world kept the liquidity pump primed and the global economy began
recovering from the recession in 2008. GDP growth in the U.S. turned
positive in the third quarter, while unemployment continued to rise ending
the year at 10%. The U.S. lost over 4 million jobs in 2009 (reported by the
Bureau of Labor Statistics). Government support programs targeting the auto
(Cash for Clunkers) and housing (first-time homebuyer tax credits)
industries created demand which boosted second half growth.
Central banks around the globe kept interest rates low throughout the year.
The Federal Reserve held its federal funds target at 0 -- 0.25% and finished
the year with a balance sheet over $2.2 trillion, 2 1/2 times its size prior
to the financial crisis in August 2007. In the statement from its final
meeting in December, the Federal Open Market Committee (FOMC) repeated that
"economic conditions...are likely to warrant exceptionally low levels of the
federal funds rate for an extended period." Quantitative easing measures
including the purchase of $1.25 trillion of agency mortgage-back securities
(MBS) and $175 billion of agency debt are scheduled to wind down early in
2
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[GRAPHIC]
2010 along with many of the special liquidity facilities given the
improvement in the financial markets.
The improving fundamental backdrop created a performance environment in
which non-government related issues (corporate, commercial MBS,
asset-backed) outperformed U.S. government securities including agency
mortgage-backed securities. Interest rates rose across the maturity spectrum
in 2009 producing negative total returns for U.S. treasuries. The U.S.
treasury 2-year and 10-year note yield ended the year at 1.14% and 3.84%
respectively, up 38 basis points (bps) and 163 bps. Default expectations
tumbled as economic activity recovered and credit spreads collapsed from
March highs. Lower quality credit rewarded investors with outsized returns.
The high yield market returned over 58% compared to high grade credit which
gained just over 16%. Commercial mortgage-backed and asset-backed securities
also performed strongly, up 28.5% and 24.7% respectively, with help from the
Term Asset-Backed Loan Facility (TALF) program.
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE?
A. The primary drivers of Fund performance in 2009 were sector allocation and
duration positioning. The Fund's allocation to high yield and emerging
market debt had a large positive impact on total return as those two sectors
far outpaced the return of the benchmark. Overweight positions in high grade
credit and commercial MBS during the second half of the year also
contributed positively as yield spreads narrowed. Duration positioning added
to relative return, particularly in December when interest rates rose and
the fund's duration was short relative to the benchmark.
3
Income Fund
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Understanding Your Fund's Expenses
As a shareholder of the Fund you incur ongoing expenses, which include
portfolio management fees, professional fees, administrative fees and other
Fund expenses. The following example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors during the period. The information in the
following table is based on an investment of $1,000, which is invested at the
beginning of the period and held for the entire six-month period ended
December 31, 2009.
Actual Expenses
The first section of the table provides information about actual account values
and actual expenses. You may use the information in this section, together with
the amount you invested, to estimate the expenses that you paid over the
period. To do so, simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number given for your class under the heading "Expenses Paid During Period."
Hypothetical Example for Comparison Purposes
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and
an assumed rate of return of 5% per year before expenses, which is not the
Fund's actual return. You may use this information to compare the ongoing costs
of investing in the Fund and other funds. To do so, compare this 5%
hypothetical example with the 5% hypothetical examples that appear in the
shareholders reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
July 1, 2009 - December 31, 2009
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Account value at the Account value at the Expenses paid
beginning of the period ($) end of the period ($) during the period ($)*
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Actual Fund Return**
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Class 1 1,000.00 1,071.53 4.39
Class 4 1,000.00 1,069.14 6.78
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Hypothetical 5% Return (2.5% for the period)
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Class 1 1,000.00 1,020.76 4.28
Class 4 1,000.00 1,018.48 6.61
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*Expenses are equal to the Fund's annualized expense ratio of 0.84% for Class 1
Shares and 1.30% for Class 4 Shares (for the period July 1, 2009--December 31,
2009), multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period)
**Actual Fund Returns for the six-month period ended December 31, 2009 were as
follows: 7.15% for Class 1 shares, and 6.91% for Class 4 shares.
4
Income Fund
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CHANGE IN VALUE OF A $10,000 INVESTMENT
CLASS 1 SHARES
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[CHART]
Barclays Capital
Income Fund U.S. Aggregate Bond Index
----------- -------------------------
12/99 10,000.00 10,000.00
12/00 11,073.98 11,162.61
12/01 11,896.47 12,105.12
12/02 13,072.45 13,346.50
12/03 13,543.05 13,894.31
12/04 14,006.22 14,497.15
12/05 14,291.58 14,849.22
12/06 14,916.29 15,492.75
12/07 15,636.30 16,572.07
12/08 14,836.85 17,440.48
12/09 16,006.43 18,474.78
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AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 2009
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CLASS 1 SHARES (Inception date: 1/3/95)
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ONE FIVE TEN ENDING VALUE OF A
YEAR YEAR YEAR $10,000 INVESTMENT
----------------------------------------------------------------------
Income Fund 7.88% 2.71% 4.82% $16,006
----------------------------------------------------------------------
Barclays Capital U.S. Aggregate
Bond Index 5.93% 4.97% 6.33% $18,475
----------------------------------------------------------------------
Morningstar peer group average* 14.18% 3.99% 5.22%
----------------------------------------------------------------------
CLASS 4 SHARES
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[CHART]
Barclays Capital
Income Fund U.S. Aggregate Bond Index
----------- --------------------------
5/1/08 10,000.00 10,000.00
6/08 9,896.19 9,918.70
9/08 9,679.93 9,870.25
12/08 9,411.57 10,322.24
3/09 9,338.26 10,334.19
6/08 9,457.39 10,518.40
9/09 9,988.91 10,912.22
12/09 10,111.32 10,934.39
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TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 2009
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CLASS 4 SHARES (Inception date: 5/1/08)
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ONE SINCE ENDING VALUE OF A
YEAR INCEPTION $10,000 INVESTMENT
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Income Fund 7.43% 0.49% $10,081
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Barclays Capital U.S. Aggregate Bond Index 5.93% 5.50% $10,934
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Morningstar peer group average** 14.18%
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INVESTMENT PROFILE [GRAPHIC]
A Mutual fund designed for investors
who seek maximum income consistent
with prudent investment management
and the preservation of capital by
investing at least 80% of its net
assets in debt securities under
normal circumstances.
PORTFOLIO COMPOSITION AS OF DECEMBER 31, 2009
as a % of Market Value
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Market Value of $60,748 (in thousands)
[CHART]
Corporate Notes 35.3%
Mortgage-Backed 32.0%
U.S. Treasuries 18.0%
Asset-Backed and Othe 14.1%
Other Investments 0.5%
Federal Agencies 0.1%
QUALITY RATINGS AS OF DECEMBER 31, 2009
as a % of Market Value
- --------------------------------------------------------------------------------
MOODY'S / S&P / PERCENTAGE OF
FITCH RATING *** MARKET VALUE
------------------------------------------------------
------------------------------------------------------
Aaa / AAA 62.74%
------------------------------------------------------
Aa / AA 2.46%
------------------------------------------------------
A / A 14.83%
------------------------------------------------------
Baa / BBB 10.39%
------------------------------------------------------
Ba / BB and lower 9.58%
------------------------------------------------------
100.00%
------------------------------------------------------
* MORNINGSTAR PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS
FOR THE ONE YEAR, FIVE-YEAR, AND TEN-YEAR PERIODS INDICATED IN THE
INTERMEDIATE-TERM BOND PEER GROUP CONSISTING OF 209, 165 AND 102 UNDERLYING
ANNUITY FUNDS, RESPECTIVELY.
**MORNINGSTAR PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS
FOR THE ONE YEAR PERIOD INDICATED IN THE INTERMEDIATE-TERM BOND PEER GROUP
CONSISTING OF 209 UNDERLYING ANNUITY FUNDS.
***MOODY'S INVESTORS SERVICES INC, STANDARD & POOR'S AND FITCH ARE NATIONALLY
RECOGNIZED STATISTICAL RATING ORGANIZATIONS.
See Notes to Performance on page 1 for further information, including an
explanation of Morningstar peer categories.
Past performance does not predict future performance and the graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
5
INCOME FUND
Schedule of Investments December 31, 2009
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INCOME FUND
PRINCIPAL
AMOUNT VALUE
BONDS AND NOTES -- 92.7% +
-----------------------------------------------------------------
U.S. TREASURIES -- 18.4%
U.S. Treasury Bonds
4.50% 08/15/39............. $1,796,000 $ 1,755,310
U.S. Treasury Notes
0.02% 11/30/11............. 2,026,000 2,012,784 /(c)/
0.05% 01/31/11............. 185,000 185,578 /(c)/
1.00% 10/31/11............. 1,759,000 1,757,417 /(c)/
1.25% 11/30/10............. 128,700 129,605
2.13% 11/30/14............. 2,577,900 2,516,881
3.38% 11/15/19............. 2,135,300 2,053,902 /(f)/
4.50% 11/15/10............. 20,000 20,696
4.63% 10/31/11............. 460,000 489,846
10,922,019
FEDERAL AGENCIES -- 0.1%
Federal Home Loan Mortgage Corp.
8.25% 06/01/26............. 60,000 76,929 /(f,h)/
AGENCY MORTGAGE BACKED -- 22.7%
Federal Home Loan Mortgage Corp.
4.50% 06/01/33 - 02/01/35.. 46,675 46,786 /(f)/
5.00% 07/01/35............. 190,000 195,380 /(f)/
5.50% 05/01/20 - 03/01/38.. 1,507,270 1,590,356 /(f)/
6.00% 04/01/17 - 11/01/37.. 1,170,008 1,247,143 /(f)/
6.50% 02/01/29............. 396 429 /(f)/
7.00% 10/01/16 - 08/01/36.. 130,450 143,337 /(f)/
7.50% 09/01/12 - 09/01/33.. 17,968 20,035 /(f)/
8.00% 11/01/30............. 17,273 19,831 /(f)/
8.50% 04/01/30 - 05/01/30.. 22,784 26,373 /(f)/
5.50% TBA.................. 180,000 188,550 /(b)/
Federal National Mortgage Assoc.
4.00% 05/01/19 - 06/01/19.. 181,647 185,640 /(f)/
4.50% 05/01/18 - 12/01/34.. 763,809 786,205 /(f)/
5.00% 03/01/34 - 08/01/35.. 433,182 445,765 /(f)/
5.47% 04/01/37............. 9,496 9,942 /(g)/
5.50% 12/01/13 - 04/01/38.. 3,363,839 3,542,480 /(f)/
5.81% 03/01/37............. 9,848 10,333 /(g)/
6.00% 06/01/14 - 03/01/38.. 1,561,476 1,666,252 /(f)/
6.50% 07/01/17 - 08/01/34.. 243,908 263,635 /(f)/
7.00% 03/01/15 - 02/01/34.. 86,286 94,533 /(f)/
7.50% 08/01/13 - 03/01/34.. 121,052 136,199 /(f)/
8.00% 12/01/12 - 11/01/33.. 93,187 106,640 /(f)/
8.50% 05/01/31............. 4,564 5,264 /(f)/
9.00% 04/01/16 -12/01/22... 10,744 11,832 /(f)/
4.50% TBA.................. 170,000 169,681 /(b)/
5.00% TBA.................. 547,000 571,615 /(b)/
5.50% TBA.................. 485,000 507,659 /(b)/
7.00% TBA.................. 210,000 230,114 /(b)/
PRINCIPAL
AMOUNT VALUE
Government National Mortgage
Assoc.
4.13% 12/20/24............. $ 3,030 $ 3,096 /(f,g)/
4.38% 02/20/23 - 02/20/26.. 10,891 11,193 /(f,g)/
4.50% 08/15/33 - 09/15/34.. 251,162 253,105 /(f)/
6.00% 04/15/27 - 09/15/36.. 372,124 396,963 /(f)/
6.50% 04/15/19 - 08/15/36.. 309,633 332,010 /(f)/
7.00% 03/15/12 - 10/15/36.. 186,233 205,371 /(f)/
7.50% 11/15/31 - 10/15/33.. 7,389 8,311 /(f)/
8.00% 12/15/29............. 2,681 3,082 /(f)/
8.50% 10/15/17............. 14,058 15,368 /(f)/
9.00% 11/15/16 - 12/15/21.. 37,892 42,198 /(f)/
13,492,706
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 4.2%
Federal Home Loan Mortgage Corp.
REMIC
0.00% 11/15/37............. 175,676 142,720 /(e,l)/
0.17% 09/25/43............. 1,255,742 13,824 /(e,f,g,l)/
0.62% 09/15/34............. 63,838 48,345 /(c,d)/
4.50% 10/15/16 - 03/15/19.. 274,462 22,810 /(e,f,l)/
5.00% 10/15/14 - 12/01/34.. 523,578 50,667 /(e,f,l)/
5.00% 05/15/38............. 75,127 73,986
5.50% 04/15/17 - 06/15/33.. 326,947 55,169 /(e,f,l)/
6.01% 12/15/39............. 408,553 42,770 /(e,g,l)/
6.36% 05/15/36............. 439,278 59,947 /(e,g,l)/
6.97% 02/15/36............. 358,812 52,343 /(e,g,l)/
7.47% 04/15/36............. 409,508 58,867 /(e,g,l)/
7.50% 01/15/16............. 12,951 13,203 /(f)/
7.50% 07/15/27............. 10,034 1,918 /(e,f,l)/
8.00% 02/01/23 - 07/01/24.. 4,741 1,062 /(e,f,l)/
Federal Home Loan Mortgage
STRIPS
9.46% 08/01/27............. 1,254 1,006 /(c,d,f)/
Federal National Mortgage Assoc.
1.20% 12/25/42............. 79,122 3,780 /(e,f,g,l)/
4.50% 05/25/18............. 50,541 1,370 /(e,f,l)/
4.75% 11/25/14............. 2,960 2 /(e,f,l)/
5.00% 08/25/17 - 02/25/32.. 250,619 28,020 /(e,f,l)/
5.00% 10/25/35 - 08/25/38.. 207,336 203,404
5.50% 01/25/33............. 154,174 158,927 /(f)/
6.12% 03/25/38............. 547,379 64,208 /(e,g,l)/
6.77% 10/25/29............. 344,496 33,665 /(e,f,g,l)/
7.00% 09/25/20............. 647 693 /(f)/
7.27% 05/25/18............. 487,337 55,990 /(e,f,g,l)/
7.37% 09/25/42............. 855,308 161,354 /(e,f,g,l)/
7.47% 08/25/16............. 110,057 6,369 /(e,f,g,l)/
16.10% 03/25/31............. 256,076 289,697 /(f,g)/
Federal National Mortgage Assoc.
(Class 1)
1.35% 11/01/34............. 252,289 209,020 /(c,d,f)/
4.50% 09/01/35 - 01/01/36.. 531,107 109,176 /(e,l)/
5.00% 05/25/38............. 159,456 29,046 /(e,l)/
Federal National Mortgage Assoc.
(Class 2)
4.50% 08/01/35............. 158,976 37,525 /(e,l)/
5.00% 03/25/38............. 148,372 29,228 /(e,l)/
5.50% 12/01/33............. 66,738 14,699 /(e,f,l)/
See Notes to Schedule of Investments on page 13 and Notes to Financial
Statements on page 18.
6
INCOME FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
7.50% 11/01/23.............. $ 29,697 $ 4,779 /(e,f,l)/
8.00% 08/01/23 - 07/01/24... 10,448 2,445 /(e,f,l)/
8.50% 07/25/22.............. 463 103 /(e,f,l)/
9.00% 05/25/22.............. 306 76 /(e,f,l)/
Federal National Mortgage Assoc.
(Class B)
6.69% 12/25/22.............. 305 283 /(c,d,f)/
Federal National Mortgage Assoc.
(Class H)
5.00% 10/25/22.............. 73,400 7,882 /(e,f,l)/
Federal National Mortgage Assoc.
(Class K)
1008.00% 05/25/22.............. 7 175 /(e,f,l)/
Federal National Mortgage Assoc.
REMIC
6.00% 04/25/37.............. 336,119 67,425 /(e,l)/
6.01% 01/25/40.............. 1,525,539 171,289 /(e,g,l)/
6.31% 07/25/36.............. 493,369 60,683 /(e,g,l)/
6.42% 06/25/36.............. 240,526 32,415 /(e,g,l)/
Government National Mortgage Assoc.
6.17% 05/20/39.............. 378,269 41,848 /(e,g,l)/
6.27% 01/20/37.............. 572,476 55,461 /(e,g,l)/
2,519,674
ASSET BACKED -- 3.4%
Bear Stearns Asset Backed Securities
Trust
0.45% 11/25/35.............. 638,319 582,786 /(f,g)/
Chase Funding Mortgage Loan
Asset-Backed Certificates
0.79% 02/25/33.............. 24,048 22,283 /(f,g)/
5.75% 05/25/32.............. 23,169 11,581 /(f,g,k)/
Countrywide Asset-Backed Certificates
1.09% 05/25/33.............. 10,708 6,178 /(f,g)/
5.31% 08/25/35.............. 750,000 690,530 /(g)/
Discover Card Master Trust I (Class A)
0.56% 06/16/15.............. 40,000 37,601 /(g)/
Discover Card Master Trust I (Class B)
(Series 2)
0.41% 05/15/12.............. 60,000 57,445 /(g)/
Mid-State Trust
7.54% 07/01/35.............. 2,011 1,893 /(f,k)/
Nissan Auto Lease Trust
0.30% 02/15/13.............. 114,720 114,624 /(g)/
Residential Asset Mortgage Products
Inc. (Class A)
0.79% 06/25/32.............. 20,977 17,183 /(g)/
Residential Asset Securities Corp.
0.73% 07/25/32.............. 4,490 2,179 /(f,g)/
Saxon Asset Securities Trust
5.23% 08/25/35.............. 537,753 466,494 /(g)/
Wells Fargo Home Equity Trust
3.97% 05/25/34.............. 8,806 8,735 /(f,g,k)/
2,019,512
CORPORATE NOTES -- 36.0%
Alliance One International, Inc.
10.00% 07/15/16.............. 68,000 71,400 /(a)/
AMC Entertainment Inc.
8.75% 06/01/19.............. 83,000 84,660
PRINCIPAL
AMOUNT VALUE
American Tower Corp.
4.63% 04/01/15........ $ 94,000 $ 95,077 /(a)/
Anheuser-Busch InBev Worldwide Inc.
5.38% 11/15/14........ 89,000 94,229 /(a)/
7.20% 01/15/14........ 31,000 35,159 /(a)/
7.75% 01/15/19........ 159,000 186,156 /(a,f)/
Apria Healthcare Group Inc.
11.25% 11/01/14........ 103,000 113,042 /(a)/
ARAMARK Corp.
8.50% 02/01/15........ 212,000 218,360
Archer-Daniels-Midland Co.
6.45% 01/15/38........ 97,000 107,998
Arizona Public Service Co.
6.25% 08/01/16........ 165,000 174,445 /(f)/
AT&T Inc.
6.40% 05/15/38........ 80,000 82,214 /(f)/
6.70% 11/15/13........ 108,000 121,851 /(f)/
Axtel SAB de C.V.
9.00% 09/22/19........ 6,000 6,150 /(a)/
Banco do Brasil S.A.
8.50% 10/29/49........ 100,000 106,500 /(a)/
Banco Mercantil del Norte S.A.
6.14% 10/13/16........ 14,000 13,572 /(g)/
Banco Nacional de Desenvolvimento
Economico e Social
6.50% 06/10/19........ 200,000 215,000 /(a)/
Bank of America Corp.
5.75% 12/01/17........ 75,000 76,801
6.50% 08/01/16........ 260,000 279,584
7.38% 05/15/14........ 35,000 39,715
Barclays Bank PLC
5.00% 09/22/16........ 100,000 102,181
5.20% 07/10/14........ 100,000 106,001
Berkshire Hathaway Finance Corp.
5.00% 08/15/13........ 2,000 2,151
BlackRock, Inc.
5.00% 12/10/19........ 88,000 86,476
Boston Properties LP (REIT)
5.88% 10/15/19........ 63,000 63,197
Boston Scientific Corp.
6.00% 01/15/20........ 44,000 44,958
Bristol-Myers Squibb Co.
5.88% 11/15/36........ 56,000 58,201 /(f)/
CA, Inc.
5.38% 12/01/19........ 64,000 64,359
6.13% 12/01/14........ 32,000 35,352
Calpine Corp.
7.25% 10/15/17........ 5,000 4,800 /(a)/
Cantor Fitzgerald LP
7.88% 10/15/19........ 64,000 62,634 /(a)/
Cargill Inc.
5.20% 01/22/13........ 162,000 171,776 /(a,f)/
6.00% 11/27/17........ 63,000 67,147 /(a)/
Carolina Power & Light Co.
5.15% 04/01/15........ 80,000 86,091 /(f)/
5.70% 04/01/35........ 45,000 44,751 /(f)/
6.13% 09/15/33........ 88,000 92,337 /(f)/
Case New Holland Inc.
7.75% 09/01/13........ 136,000 139,060 /(a)/
See Notes to Schedule of Investments on page 13 and Notes to Financial
Statements on page 18.
7
INCOME FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
Cenovus Energy Inc.
4.50% 09/15/14........ $ 69,000 $ 71,225 /(a)/
6.75% 11/15/39........ 63,000 68,673 /(a)/
Central American Bank for Economic
Integration
5.38% 09/24/14........ 70,000 72,625 /(a)/
Chesapeake Energy Corp.
7.25% 12/15/18........ 17,000 17,128
Cincinnati Bell Inc.
8.25% 10/15/17........ 122,000 123,830
Citigroup, Inc.
5.00% 09/15/14........ 79,000 76,158
5.13% 05/05/14........ 102,000 101,522
6.38% 08/12/14........ 222,000 232,413
8.50% 05/22/19........ 175,000 202,082
City National Capital Trust I
9.63% 02/01/40........ 64,000 67,975
Clarendon Alumina Production Ltd.
8.50% 11/16/21........ 155,000 113,150 /(a,f)/
CME Group Inc.
5.40% 08/01/13........ 79,000 85,258
Comcast Corp.
6.50% 01/15/15........ 62,000 69,462
Community Health Systems, Inc.
8.88% 07/15/15........ 210,000 217,350
Consolidated Edison Company of
New York Inc.
5.85% 04/01/18........ 75,000 80,336
6.65% 04/01/19........ 74,000 83,856
COX Communications Inc.
6.25% 06/01/18........ 83,000 88,344 /(a)/
7.13% 10/01/12........ 57,000 63,318 /(f)/
7.75% 11/01/10........ 130,000 136,092 /(f)/
Credit Suisse
6.00% 02/15/18........ 209,000 218,685
Credit Suisse First Boston International for
CJSC The EXIM of Ukraine
7.65% 09/07/11........ 100,000 84,000
CVS Caremark Corp.
5.75% 06/01/17........ 38,000 40,106
6.13% 09/15/39........ 94,000 93,163
6.60% 03/15/19........ 30,000 32,829
DASA Finance Corp.
8.75% 05/29/18........ 108,000 112,050
Diageo Finance BV
3.25% 01/15/15........ 63,000 62,581
DirecTV Financing Company Inc.
4.75% 10/01/14........ 132,000 134,552 /(a)/
5.88% 10/01/19........ 76,000 77,299 /(a)/
Dominion Resources, Inc.
5.20% 08/15/19........ 64,000 64,998
Dover Corp.
6.50% 02/15/11........ 90,000 95,078 /(f)/
Drummond Company Inc.
7.38% 02/15/16........ 70,000 68,425 /(a)/
9.00% 10/15/14........ 67,000 70,266 /(a)/
Duke Energy Indiana Inc.
6.35% 08/15/38........ 111,000 121,264
Dynegy Holdings Inc.
7.50% 06/01/15........ 116,000 108,460
PRINCIPAL
AMOUNT VALUE
Ecopetrol S.A.
7.63% 07/23/19....... $ 20,000 $ 22,170
Embraer Overseas Ltd.
6.38% 01/15/20....... 27,000 27,000
European Investment Bank
4.88% 01/17/17....... 100,000 107,157
Exelon Generation Company LLC
5.20% 10/01/19....... 88,000 88,039
6.25% 10/01/39....... 78,000 79,469
Gaz Capital S.A.
9.25% 04/23/19....... 100,000 111,500
Genworth Financial Inc.
8.63% 12/15/16....... 64,000 66,396
GlaxoSmithKline Capital Inc.
4.85% 05/15/13....... 66,000 70,848
Globo Comunicacao e Participacoes S.A.
7.25% 04/26/22....... 100,000 104,500 /(a)/
HCA Inc.
7.88% 02/15/20....... 152,000 158,270 /(a)/
9.25% 11/15/16....... 194,000 208,308
HCC Insurance Holdings, Inc.
6.30% 11/15/19....... 32,000 32,502
Health Management Associates, Inc.
6.13% 04/15/16....... 139,000 130,312
Holcim US Finance Sarl & Cie SCS
6.00% 12/30/19....... 49,000 51,004 /(a)/
Host Hotels & Resorts LP (REIT)
9.00% 05/15/17....... 185,000 200,031 /(a)/
HSBC Bank USA N.A.
4.63% 04/01/14....... 50,000 52,195
HSBC Finance Corp.
5.00% 06/30/15....... 234,000 241,723
5.70% 06/01/11....... 135,000 141,036
6.75% 05/15/11....... 95,000 100,403
HSBC Holdings PLC
6.50% 05/02/36....... 100,000 104,882 /(f)/
6.80% 06/01/38....... 250,000 271,318
IIRSA Norte Finance Ltd.
8.75% 05/30/24....... 160,528 168,554 /(a,f)/
Illinois Power Co.
9.75% 11/15/18....... 98,000 121,860
Ingles Markets Inc.
8.88% 05/15/17....... 140,000 145,600
Inmarsat Finance PLC
7.38% 12/01/17....... 100,000 102,250 /(a)/
Intelsat Subsidiary Holding Company Ltd.
8.88% 01/15/15....... 69,000 71,415
Intergen N.V.
9.00% 06/30/17....... 288,000 300,240 /(a)/
International Paper Co.
7.50% 08/15/21....... 132,000 147,902
Johnson & Johnson
5.85% 07/15/38....... 70,000 75,521
JPMorgan Chase & Co.
5.13% 09/15/14....... 190,000 200,405
6.30% 04/23/19....... 48,000 52,804
JPMorgan Chase Bank
5.88% 06/13/16....... 19,000 19,937
JPMorgan Chase Capital XXVII
7.00% 11/01/39....... 95,000 95,809
See Notes to Schedule of Investments on page 13 and Notes to Financial
Statements on page 18.
8
INCOME FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
KazMunaiGaz Finance Sub BV
11.75% 01/23/15....... $100,000 $120,500 /(a)/
Kreditanstalt fuer Wiederaufbau
3.50% 03/10/14....... 340,000 349,407
4.13% 10/15/14....... 132,000 138,329
4.50% 07/16/18....... 231,000 238,548
L-3 Communications Corp.
5.88% 01/15/15....... 82,000 81,898
Lincoln National Corp.
8.75% 07/01/19....... 110,000 125,686
Majapahit Holding BV
7.25% 10/17/11....... 100,000 104,500 /(a)/
7.75% 10/17/16....... 100,000 105,880 /(a)/
7.75% 01/20/20....... 100,000 104,750
Massey Energy Co.
6.88% 12/15/13....... 69,000 68,914
McDonald's Corp.
6.30% 03/01/38....... 57,000 62,874
Mead Johnson Nutrition Co.
4.90% 11/01/19....... 94,000 93,200 /(a)/
Merrill Lynch & Company Inc.
6.05% 08/15/12....... 110,000 117,836
6.88% 04/25/18....... 110,000 118,518
Midamerican Energy Holdings Co.
6.13% 04/01/36....... 115,000 117,782 /(f)/
Morgan Stanley
5.05% 01/21/11....... 42,000 43,562
5.63% 09/23/19....... 125,000 125,914
6.00% 04/28/15....... 67,000 71,370
7.30% 05/13/19....... 166,000 186,406
Morgan Stanley (Series F)
6.63% 04/01/18....... 100,000 108,117
Munich Re America Corp. (Series B)
7.45% 12/15/26....... 105,000 108,152 /(f)/
NAK Naftogaz Ukraine
9.50% 09/30/14....... 100,000 83,946 /(m)/
National Agricultural Cooperative
Federation
5.00% 09/30/14....... 58,000 60,113 /(a)/
Newmont Mining Corp.
5.13% 10/01/19....... 49,000 49,023
6.25% 10/01/39....... 142,000 142,170
News America Inc.
5.65% 08/15/20....... 45,000 46,856 /(a)/
6.65% 11/15/37....... 96,000 101,405
Nexen Inc.
6.20% 07/30/19....... 113,000 119,568
7.50% 07/30/39....... 76,000 87,130
NGPL Pipeco LLC
7.12% 12/15/17....... 81,000 89,381 /(a)/
Nisource Finance Corp.
6.13% 03/01/22....... 62,000 63,274
Noble Group Ltd.
6.75% 01/29/20....... 100,000 102,625 /(a)/
NorthWestern Corp.
5.88% 11/01/14....... 85,000 88,169 /(f)/
NRG Energy, Inc.
7.38% 02/01/16....... 195,000 195,244
PRINCIPAL
AMOUNT VALUE
Oracle Corp.
5.00% 07/08/19....... $ 66,000 $ 68,065
Pacific Gas & Electric Co.
5.80% 03/01/37....... 105,000 106,418
Pacificorp
6.25% 10/15/37....... 2,000 2,158
Parker Hannifin Corp.
5.50% 05/15/18....... 114,000 120,097
Pemex Finance Ltd.
9.03% 02/15/11....... 16,250 16,738 /(f)/
Petrobras International Finance Co.
5.75% 01/20/20....... 70,000 71,210
Petroleos Mexicanos
4.88% 03/15/15....... 100,000 99,630 /(a)/
8.00% 05/03/19....... 18,000 20,835
Pfizer Inc.
6.20% 03/15/19....... 64,000 71,144
7.20% 03/15/39....... 32,000 39,102
Pioneer Natural Resources Co.
7.50% 01/15/20....... 58,000 58,026
Plains All American Pipeline LP
4.25% 09/01/12....... 97,000 100,102
PNC Funding Corp.
4.25% 09/21/15....... 62,000 63,247
Principal Financial Group, Inc.
8.88% 05/15/19....... 45,000 51,908
Prudential Financial, Inc.
3.63% 09/17/12....... 31,000 31,459
5.15% 01/15/13....... 73,000 76,795
7.38% 06/15/19....... 66,000 73,997
QVC Inc.
7.50% 10/01/19....... 52,000 53,040 /(a)/
Qwest Communications International Inc.
8.00% 10/01/15....... 64,000 65,760 /(a)/
RailAmerica, Inc.
9.25% 07/01/17....... 128,000 136,160
Republic Services Inc.
5.25% 11/15/21....... 64,000 62,927 /(a)/
5.50% 09/15/19....... 44,000 44,680 /(a)/
Reynolds Group DL Escrow Inc.
7.75% 10/15/16....... 167,000 170,758 /(a)/
Roche Holdings Inc.
6.00% 03/01/19....... 76,000 83,513 /(a)/
Royal Bank of Scotland Group PLC
6.40% 10/21/19....... 42,000 41,865
Sabine Pass LNG LP
7.25% 11/30/13....... 105,000 95,288
SBA Telecommunications Inc.
8.00% 08/15/16....... 28,000 29,260 /(a)/
8.25% 08/15/19....... 42,000 44,520 /(A)/
Security Benefit Life Insurance
8.75% 05/15/16....... 120,000 30,000 /(a)/
Simon Property Group LP (REIT)
6.75% 05/15/14....... 78,000 83,123
Southern California Edison Co.
5.50% 08/15/18....... 65,000 69,388
Spirit Aerosystems Inc.
7.50% 10/01/17....... 64,000 63,040 /(a)/
Talisman Energy Inc.
7.75% 06/01/19....... 52,000 61,069
See Notes to Schedule of Investments on page 13 and Notes to Financial
Statements on page 18.
9
INCOME FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
Target Corp.
7.00% 01/15/38............ $ 52,000 $ 60,671
Teachers Insurance & Annuity Association
of America
6.85% 12/16/39............ 76,000 78,564 /(a)/
Teck Resources Ltd.
10.75% 05/15/19............ 16,000 19,120
Telecom Italia Capital S.A.
6.20% 07/18/11............ 81,000 85,736
7.18% 06/18/19............ 92,000 102,567
Telefonica Emisiones SAU
5.86% 02/04/13............ 150,000 162,070
Tesoro Corp. (Series B)
6.63% 11/01/15............ 164,000 155,800
The Allstate Corp.
7.45% 05/16/19............ 48,000 55,767 /(f)/
The Bear Stearns Companies LLC
6.95% 08/10/12............ 114,000 127,369 /(f)/
The Dow Chemical Co.
5.90% 02/15/15............ 90,000 96,712
8.55% 05/15/19............ 32,000 38,181
The Goldman Sachs Group, Inc.
5.25% 10/15/13............ 51,000 54,163
6.00% 05/01/14............ 90,000 98,439
6.60% 01/15/12............ 7,000 7,610
7.50% 02/15/19............ 150,000 174,870
The Kroger Co.
6.15% 01/15/20............ 98,000 104,884
The Potomac Edison Co.
5.35% 11/15/14............ 95,000 99,568 /(f)/
The Royal Bank of Scotland PLC
4.88% 08/25/14............ 100,000 101,369 /(a)/
The Toledo Edison Company
7.25% 05/01/20............ 32,000 36,516
The Travelers Companies, Inc.
5.80% 05/15/18............ 78,000 83,127
The Williams Companies, Inc.
7.88% 09/01/21............ 96,000 110,114
Thermo Fisher Scientific, Inc.
3.25% 11/18/14............ 64,000 62,746 /(a)/
Thomson Reuters Corp.
5.95% 07/15/13............ 115,000 125,892
Time Warner Cable Inc.
6.75% 07/01/18............ 58,000 63,717
7.50% 04/01/14............ 52,000 59,913
8.75% 02/14/19............ 110,000 134,065
Time Warner Inc.
5.88% 11/15/16............ 83,000 89,599
Transocean Inc.
6.00% 03/15/18............ 78,000 83,221
United Technologies Corp.
6.13% 07/15/38............ 39,000 42,251
UPC Germany GmbH
8.13% 12/01/17............ 100,000 101,125 /(a)/
USB Capital XIII Trust
6.63% 12/15/39............ 64,000 65,046
Valero Energy Corp.
6.63% 06/15/37............ 85,000 79,758
Vedanta Resources PLC
6.63% 02/22/10............ 30,000 30,075
PRINCIPAL
AMOUNT VALUE
Verizon Communications Inc.
6.35% 04/01/19...... $ 30,000 $ 33,097
6.40% 02/15/38...... 70,000 73,179
6.90% 04/15/38...... 76,000 84,234
8.75% 11/01/18...... 40,000 49,961
Verizon Global Funding Corp.
7.25% 12/01/10...... 193,000 203,958
Verizon Wireless Capital LLC
5.55% 02/01/14...... 106,000 115,039
7.38% 11/15/13...... 193,000 221,693
Virgin Media Finance PLC
8.38% 10/15/19...... 100,000 102,875
VTB Capital SA for Vneshtorgbank
6.32% 02/04/15...... 100,000 99,020 /(g)/
Walgreen Co.
5.25% 01/15/19...... 67,000 71,101
WEA Finance LLC
6.75% 09/02/19...... 64,000 68,720 /(a)/
7.50% 06/02/14...... 100,000 112,530 /(a)/
Westpac Banking Corp.
4.88% 11/19/19...... 128,000 126,337
Windstream Corp.
7.88% 11/01/17...... 150,000 148,125 /(a)/
Woodside Finance Ltd.
4.50% 11/10/14...... 126,000 127,123 /(a)/
Wyeth
5.50% 03/15/13...... 108,000 117,427
XL Capital Ltd.
5.25% 09/15/14...... 142,000 139,064
Xstrata Finance Canada Ltd.
5.80% 11/15/16...... 62,873 64,442 /(a)/
XTO Energy Inc.
6.38% 06/15/38...... 61,000 68,662
6.50% 12/15/18...... 32,000 36,566
21,459,445
NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 5.8%
Banc of America Commercial
Mortgage Inc. (Class A)
5.49% 02/10/51...... 131,250 110,726
5.66% 06/10/49...... 150,000 125,376
Banc of America Commercial Mortgage
Inc. (Class C)
5.70% 04/10/49...... 100,000 21,613 /(f,g,k)/
Banc of America Funding Corp.
5.37% 02/20/36...... 10,400 4 /(f,g,k)/
5.60% 03/20/36...... 68,727 3,753 /(f,g,k)/
Banc of America Mortgage Securities
Inc. (Class B)
5.16% 01/25/36...... 73,790 5,497 /(f,g,k)/
Bear Stearns Commercial Mortgage
Securities
5.46% 03/11/39...... 50,000 30,489 /(g)/
5.48% 10/12/41...... 245,000 247,901 /(f)/
5.61% 06/11/50...... 90,000 91,283
5.69% 06/11/50...... 120,000 105,069 /(g)/
5.72% 06/11/40...... 60,000 29,992 /(g)/
6.21% 11/11/17...... 70,000 34,337 /(g)/
See Notes to Schedule of Investments on page 13 and Notes to Financial
Statements on page 18.
10
INCOME FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
Bear Stearns Commercial Mortgage
Securities (Class A)
5.46% 04/12/38........ $ 25,000 $ 25,370 /(g)/
5.54% 10/12/41........ 130,000 129,262
5.92% 06/11/50........ 80,000 57,761 /(g)/
Bear Stearns Commercial Mortgage
Securities (Class D)
5.99% 09/11/42........ 20,000 3,738 /(g,k)/
Citigroup Commercial Mortgage Trust
(Class A)
5.62% 10/15/48........ 150,000 142,894
Countrywide Commercial Mortgage
Trust
5.46% 07/12/46........ 150,000 115,177
Credit Suisse Mortgage Capital
Certificates
5.47% 09/15/39........ 217,000 185,865 /(f)/
Credit Suisse Mortgage Capital
Certificates (Class C)
5.65% 02/25/36........ 38,184 2,774 /(f,g,k)/
CS First Boston Mortgage Securities
Corp.
0.65% 07/15/37........ 1,732,683 24,611 /(a,f,g,k)/
1.40% 03/15/35........ 2,687,264 6,208 /(a,f,g,k)/
5.34% 10/25/35........ 72,554 5,804 /(f,g,k)/
Greenwich Capital Commercial Funding
Corp.
5.44% 03/10/39........ 90,000 79,519
5.60% 12/10/49........ 50,000 49,521
GS Mortgage Securities Corp II
5.56% 11/10/39........ 90,000 78,799
Indymac INDA Mortgage Loan Trust
5.22% 01/25/36........ 99,488 1,194 /(f,g,k)/
Indymac INDA Mortgage Loan Trust
(Class B)
5.22% 01/25/36........ 99,247 5,592 /(f,g,k)/
JP Morgan Chase Commercial
Mortgage Securities Corp.
5.50% 06/12/47........ 30,000 13,359 /(g)/
5.79% 02/12/51........ 90,000 78,510 /(g)/
6.07% 02/12/51........ 210,000 165,192
6.20% 02/12/51........ 40,000 7,066 /(g,k)/
JP Morgan Chase Commercial
Mortgage Securities Corp. (Class A)
5.90% 02/12/51........ 120,000 86,855 /(g)/
LB-UBS Commercial Mortgage Trust
0.67% 09/15/39........ 5,778,807 117,040 /(f,g,k)/
0.72% 01/18/12........ 2,328,304 26,468 /(f,g,k)/
5.87% 09/15/45........ 150,000 131,656 /(g)/
6.15% 04/15/41........ 30,000 17,554
LB-UBS Commercial Mortgage Trust
(Class B)
6.65% 07/14/16........ 34,000 35,067 /(a,f,k)/
LB-UBS Commercial Mortgage Trust
(Class F)
6.24% 07/15/40........ 70,000 11,704 /(g,k)/
MASTR Alternative Loans Trust
5.00% 08/25/18........ 108,355 10,663 /(e,f,k,l)/
MLCC Mortgage Investors Inc.
5.04% 02/25/36........ 59,995 2,298 /(f,g,k)/
PRINCIPAL
AMOUNT VALUE
Morgan Stanley Capital I
5.28% 12/15/43...... $102,000 $ 103,282 /(f)/
5.33% 12/15/43...... 102,000 94,651 /(f)/
5.36% 11/12/41...... 245,000 201,699
5.39% 11/12/41...... 280,000 157,259 /(f,g)/
5.71% 07/12/44...... 100,000 100,106 /(f)/
Morgan Stanley Capital I (Class A)
1.00% 03/12/44...... 150,000 144,654 /(g)/
Puma Finance Ltd. (Class A)
0.66% 10/11/34...... 59,758 57,164 /(g)/
Residential Funding Mortgage Securities
I
5.75% 01/25/36...... 169,217 12,319 /(f,k)/
Wachovia Bank Commercial Mortgage
Trust
5.25% 12/15/43...... 120,000 115,937
Wachovia Bank Commercial Mortgage
Trust (Class A)
5.99% 06/15/45...... 30,000 18,071 /(g)/
Wells Fargo Mortgage Backed Securities
Trust
5.39% 08/25/35...... 105,281 6,580 /(f,g,k)/
5.50% 01/25/36...... 149,990 21,911 /(f,k)/
3,457,194
SOVEREIGN BONDS -- 1.7%
Government of Argentina
2.50% 12/31/38...... 13,655 4,745
Government of Belize
4.25% 02/20/29...... 13,600 7,480 /(h)/
Government of Brazil
8.00% 01/15/18...... 71,778 81,898
Government of Colombia
6.13% 01/18/41...... 100,000 92,750
Government of Dominican
9.50% 09/27/11...... 57,527 59,828
Government of Indonesia
11.63% 03/04/19...... 100,000 143,500 /(a)/
Government of Korea
5.75% 04/16/14...... 22,000 24,047
Government of Lebanon
4.00% 12/31/17...... 11,050 10,221
Government of Panama
6.70% 01/26/36...... 105,000 110,775
Government of Peruvian
6.55% 03/14/37...... 84,000 87,360
Government of Philippines
6.50% 01/20/20...... 100,000 108,250
Government of Poland
6.38% 07/15/19...... 21,000 22,841
Government of Uruguay
6.88% 09/28/25...... 20,114 21,120
Government of Venezuela
5.38% 08/07/10...... 99,000 96,525
10.75% 09/19/13...... 34,000 29,920
Republic of Lithuania
6.75% 01/15/15...... 100,000 101,811 /(a)/
1,003,071
See Notes to Schedule of Investments on page 13 and Notes to Financial
Statements on page 18.
11
INCOME FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
MUNICIPAL BONDS AND NOTES -- 0.4%
American Municipal Power-Ohio Inc.
6.05% 02/15/43....... $ 50,000 $ 46,834
Dallas Area Rapid Transit
6.00% 12/01/44....... 40,000 40,961
New Jersey State Turnpike Authority
7.41% 01/01/40....... 110,000 123,174
New Jersey Transportation Trust Fund
Authority
6.88% 12/15/39....... 15,000 15,408
226,377
TOTAL BONDS AND NOTES
(COST $55,242,854).................... 55,176,927
-------------------------------------------------------------------------
OTHER INVESTMENTS -- 0.4%
-------------------------------------------------------------------------
GEI Investment Fund
(COST $344,050)....................... 261,478 /(i)/
TOTAL INVESTMENT IN SECURITIES
(COST $55,586,904).................... 55,438,405
-------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 8.9%
-------------------------------------------------------------------------
GE Money Market Fund
Institutional Class
0.01%
(COST $5,309,356) 5,309,356 /(c,j)/
TOTAL INVESTMENTS
(COST $60,896,260).................... 60,747,761
LIABILITIES IN EXCESS OF OTHER ASSETS, NET
-- (2.0)%........ (1,205,167)
-----------
NET ASSETS -- 100.0%................... $59,542,594
===========
OTHER INFORMATION
- ------------------
The GEI Income Fund had the following long futures contracts open at December
31, 2009:
NUMBER CURRENT UNREALIZED
EXPIRATION OF NOTIONAL APPRECIATION/
DESCRIPTION DATE CONTRACTS VALUE (DEPRECIATION)
-------------------------------------------------------------------
2 Yr. U.S. Treasury
Notes Futures March 2010 3 $ 648,797 $ (516)
5 Yr. U.S. Treasury
Notes Futures March 2010 17 1,944,508 (31,789)
The GEI Income Fund had the following short futures contracts open at December
31, 2009:
NUMBER CURRENT UNREALIZED
EXPIRATION OF NOTIONAL APPRECIATION/
DESCRIPTION DATE CONTRACTS VALUE (DEPRECIATION)
----------------------------------------------------------------------
10 Yr. U.S. Treasury
Notes Futures March 2010 35 $(4,040,859) $104,646
--------
$ 72,341
========
See Notes to Schedule of Investments on page 13 and Notes to Financial
Statements on page 18.
12
Notes to Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
The views expressed in this document reflect our judgment as of the publication
date and are subject to change at any time without notice. The securities cited
may not represent current or future holdings and should not be considered as a
recommendation to purchase or sell a particular security. See the prospectus
for complete descriptions of investment objectives, policies, risks and
permissible investments.
(a)Pursuant to Rule 144A of the Securities Act of 1933, these securities may be
resold in transactions exempt from registration, normally to qualified
institutional buyers. At December 31, 2009, these securities amounted to
$5,863,662 or 9.85% of the net assets of the GE Investments Income Fund.
These securities have been determined to be liquid using procedures
established by the Board of Trustees.
(b)Settlement is on a delayed delivery or when-issued basis with final maturity
to be announced (TBA) in the future.
(c)Coupon amount represents effective yield.
(d)Principal only securities represent the right to receive the monthly
principal payments on an underlying pool of mortgages. No payments of
interest on the pool are passed through to the "principal only" holder.
(e)Interest only securities represent the right to receive the monthly interest
payments on an underlying pool of mortgages. Payments of principal on the
pool reduce the value of the "interest only" holding.
(f)At December 31, 2009, all or a portion of this security was pledged to cover
collateral requirements for futures, options, forward foreign currency
contracts and/or TBA's.
(g)Variable or floating rate security. The stated rate represents the rate at
December 31, 2009.
(h)Step coupon bond. Security becomes interest bearing at a future date.
(i)GE Asset Management (GEAM) is the investment advisor of the Fund and also
serves as investment advisor of the GEI Investment Fund.
(j)GEAM, the investment adviser of the Fund, also serves as investment adviser
of the GE Funds-GE Money Market Fund
(k)Illiquid securities. At December 31, 2009, these securities amounted to
$354,113 or 0.59% of net assets for the GE Investments Income Fund. These
securities have been determined to be illiquid using procedures established
by the Board of Trustees.
(l)Coupon amount represents the coupon of the underlying mortgage securities on
which monthly interest payments are based.
(m)Securities in default.
* Less than 0.1%.
** Amount is less than $ 0.01.
+ Percentages are based on net assets as of December 31, 2009.
Abbreviations:
REIT Real Estate Investment Trust
REMIC Real Estate Mortgage Investment Conduit
STRIPS Separate Trading of Registered Interest and
Principal of Security
TBA To be Announced
13
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
INCOME FUND
-----------------------------------------------------------
CLASS 1
----------------------------------------------------------
12/31/09 12/31/08 12/31/07 12/31/06 12/31/05
-------- -------- -------- -------- --------
INCEPTION DATE -- -- -- -- 1/3/95
Net asset value, beginning of period....... $ 10.26 $ 11.50 $ 11.80 $ 11.84 $ 12.25
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)............. 0.37 0.56 0.81 0.56 0.61
Net realized and unrealized
gains/(losses) on investments........... 0.45 (1.16) (0.25) (0.04) (0.36)
- ---------------------------------------------------------------------------------------------------------
TOTAL INCOME FROM INVESTMENT OPERATIONS.... 0.82 (0.60) 0.56 0.52 0.25
- ---------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.................... 0.46 0.64 0.82 0.56 0.61
Net realized gains....................... -- -- -- -- 0.05
Return of capital........................ -- 0.00/(b)/ 0.04 -- 0.00/(b)/
- ---------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS........................ 0.46 0.64 0.86 0.56 0.66
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period............. $ 10.62 $ 10.26 $ 11.50 $ 11.80 $ 11.84
- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN /(A)/......................... 7.88% (5.21)% 4.83% 4.37% 2.04%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands). $59,532 $ 68,731 $93,480 $126,732 $116,558
Ratios to average net assets:
Net investment income.................. 4.01% 4.63% 5.07% 5.07% 4.49%
Gross Expense.......................... 0.84% 0.65% 0.61% 0.61% 0.60%
Net Expenses........................... 0.84%/(c)/ 0.63%/(c)/ 0.61% 0.61% 0.60%
Portfolio turnover rate.................... 251% 385% 448% 270% 311%
- ---------------------------------------------------------------------------------------------------------
---------------------------
CLASS 4
---------------------------
12/31/09 12/31/08
-------- --------
INCEPTION DATE -- 5/1/08
Net asset value, beginning of period....... $10.24 $11.56
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)............. 0.16 0.37**
Net realized and unrealized
gains/(losses) on investments........... 0.63 (1.08)
- -----------------------------------------------------------------------
TOTAL INCOME FROM INVESTMENT OPERATIONS.... 0.79 (0.71)
- -----------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.................... 0.41 0.61
Net realized gains....................... -- --
Return of capital........................ -- 0.00/(b)/
- -----------------------------------------------------------------------
TOTAL DISTRIBUTIONS........................ 0.41 0.61
- -----------------------------------------------------------------------
Net asset value, end of period............. $10.62 $10.24
- -----------------------------------------------------------------------
TOTAL RETURN /(A)/......................... 7.43% (6.16)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands). $ 10 $ 9
Ratios to average net assets:
Net investment income.................. 3.56% 4.33%*
Gross Expense.......................... 1.29% 1.10%*
Net Expenses........................... 1.29%/(c)/ 1.08%/(c)/*
Portfolio turnover rate.................... 251% 385%
- -----------------------------------------------------------------------
NOTES TO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(a)Total returns are historical and assume changes in share price, reinvestment
of dividends and capital gains distributions and do not include the effect
of insurance contract charges.
(b)Less than $0.01 per share.
(c)Reflects GEAM's waiver of a portion of the Fund's management fee in an
amount equal to the management fee earned by GEAM with respect to the Fund's
investment in the GE Funds - GE Money Market Fund.
* Annualized for periods less than one year.
**Per share values have been calculated using the average share method.
See Notes to Financial Statements.
14
Statement of Assets INCOME
and Liabilities DECEMBER 31, 2009 FUND
- -------------------------------------------------------------------------------
ASSETS
Investments in securities, at market (cost $55,242,854)......... $55,176,927
Investments in affiliated securities, at market (cost $344,050). 261,478
Short-term affiliated investments (at amortized cost)........... 5,309,356
Income receivables.............................................. 545,302
Receivable for fund shares sold................................. 983
Variation margin receivable..................................... 9,337
- -------------------------------------------------------------------------------
TOTAL ASSETS.................................................. 61,303,383
- -------------------------------------------------------------------------------
LIABILITIES
Distribution payable to shareholders............................ 16
Payable for investments purchased............................... 1,688,160
Payable for fund shares redeemed................................ 9,631
Payable to GEAM................................................. 24,384
Accrued other expenses.......................................... 38,598
- -------------------------------------------------------------------------------
TOTAL LIABILITIES............................................. 1,760,789
- -------------------------------------------------------------------------------
NET ASSETS........................................................ $59,542,594
- -------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital paid in................................................. 71,934,978
Undistributed (distribution in excess of) net investment income. 2,589
Accumulated net realized gain (loss)............................ (12,318,815)
Net unrealized appreciation/(depreciation) on:
Investments................................................... (148,499)
Futures....................................................... 72,341
- -------------------------------------------------------------------------------
NET ASSETS........................................................ $59,542,594
- -------------------------------------------------------------------------------
CLASS 1:
NET ASSETS........................................................ 59,532,484
Shares outstanding ($0.01 par value; unlimited shares authorized). 5,604,250
Net asset value per share......................................... $10.62
CLASS 4:
NET ASSETS........................................................ 10,110
Shares outstanding ($0.01 par value; unlimited shares authorized). 952
Net asset value per share......................................... $10.62
See Notes to Financial Statements.
15
Statements of Operations INCOME
FOR THE YEAR ENDED DECEMBER 31, 2009 FUND
- -------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Interest............................................................ $ 2,988,164
Interest from affiliated investments................................ 7,644
- -------------------------------------------------------------------------------------
TOTAL INCOME.......................................................... 2,995,808
- -------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees.................................... 310,187
Distributors Fees (Notes 4)
Class 4........................................................... 43
Transfer agent...................................................... 17,919
Directors's fees.................................................... 2,303
Custody and accounting expenses..................................... 152,116
Professional fees................................................... 23,094
Registration expenses............................................... 4,159
Other expenses...................................................... 18,468
- -------------------------------------------------------------------------------------
TOTAL EXPENSES BEFORE WAIVER AND REIMBURSEMENT........................ 528,289
- -------------------------------------------------------------------------------------
Less: Expenses reimbursed by the adviser............................ (8,712)
- -------------------------------------------------------------------------------------
Net expenses........................................................ 519,577
- -------------------------------------------------------------------------------------
NET INVESTMENT INCOME................................................. 2,476,231
- -------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments....................................................... (5,420,655)
Futures........................................................... 140,719
Foreign currency transactions..................................... (429)
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/(DEPRECIATION) ON:
Investments....................................................... 7,493,784
Futures........................................................... (62,357)
- -------------------------------------------------------------------------------------
Net realized and unrealized gain on investments..................... 2,151,062
- -------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. $ 4,627,293
- -------------------------------------------------------------------------------------
See Notes to Financial Statements.
16
Statements of Changes in Net Assets INCOME
FUND
- -----------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2009 2008
- -----------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income................................... $ 2,476,231 $ 3,994,585
Net realized (loss) on investments and futures........... (5,280,365) (2,556,185)
Net increase (decrease) in unrealized appreciation /
(depreciation) on investments and futures.............. 7,431,427 (5,834,231)
- -----------------------------------------------------------------------------------------
Net increase (decrease) from operations.................. 4,627,293 (4,395,831)
- -----------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class 1................................................ (2,472,834) (4,063,117)
Class 4................................................ (379) (528)
- -----------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS........................................ (2,473,213) (4,063,645)
- -----------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and
distributions.......................................... 2,154,080 (8,459,476)
- -----------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares
Class 1................................................ 1,389,310 6,597,220
Class 4................................................ -- 10,000
Value of distributions reinvested
Class 1................................................ 2,472,834 4,063,117
Class 4................................................ 379 528
Cost of shares redeemed
Class 1................................................ (15,214,264) (26,951,232)
Class 4................................................ -- --
- -----------------------------------------------------------------------------------------
Net (decrease) from share transactions................... (11,351,741) (16,280,367)
- -----------------------------------------------------------------------------------------
TOTAL (DECREASE) IN NET ASSETS............................. (9,197,661) (24,739,843)
NET ASSETS
Beginning of period........................................ 68,740,255 93,480,098
- -----------------------------------------------------------------------------------------
End of period.............................................. $ 59,542,594 $ 68,740,255
- -----------------------------------------------------------------------------------------
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT
INCOME, END OF PERIOD...................................... $ 2,589 $ --
- -----------------------------------------------------------------------------------------
CHANGES IN FUND SHARES
CLASS 1
Shares sold.................................................. 130,515 572,624
Issued for distributions reinvested.......................... 232,626 395,244
Shares redeemed.............................................. (1,460,217) (2,398,663)
- -----------------------------------------------------------------------------------------
Net (decrease) in fund shares................................ (1,097,076) (1,430,795)
- -----------------------------------------------------------------------------------------
CLASS 4
Shares sold.................................................. -- 865
Issued for distributions reinvested.......................... 36 51
Shares redeemed.............................................. -- --
- -----------------------------------------------------------------------------------------
Net increase in fund shares.................................. 36 916
- -----------------------------------------------------------------------------------------
See Notes to Financial Statements.
17
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
1. ORGANIZATION OF THE COMPANY
GE Investments Funds, Inc. (the "Company") was incorporated under the laws of
the Commonwealth of Virginia on May 14, 1984 and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Company is composed of fourteen investment
portfolios (collectively the "Funds"), although only the following eleven are
currently being offered: U.S. Equity Fund, S&P 500 Index Fund, Premier Growth
Equity Fund, Core Value Equity Fund, Mid-Cap Equity Fund, Small-Cap Equity
Fund, International Equity Fund, Total Return Fund, Income Fund (the "Fund"),
Money Market Fund and Real Estate Securities Fund.
Shares of the Funds of the Company are offered only to insurance company
separate accounts that fund certain variable life insurance contracts and
variable annuity contracts. These insurance companies may include insurance
companies affiliated with GE Asset Management Incorporated ("GEAM"), the
investment adviser and administrator of each of the Funds.
The Company offers two share classes (Class 1 and Class 4) of the Fund as
investment options for variable life insurance and variable annuity contracts.
Class 4 shares were first offered on May 1, 2008, and Fund shares outstanding
prior to May 1, 2008 were designated as Class 1 shares. Each share class has
different fees and expenses, and as a result, each share class will have
different share price and performance. Not all variable contracts offer both
share classes of the Fund.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results may differ from
those estimates.
ACCOUNTING CHANGES
The Financial Accounting Standards Board (FASB) issued FASB Accounting
Standards Codification (ASC) effective for financial statements issued for
interim and annual periods ending after September 15, 2009. The ASC is an
aggregation of previously issued authoritative U.S. generally accepted
accounting principles (GAAP) in one comprehensive set of guidance organized by
subject area. In accordance with the ASC, references to previously issued
accounting standards have been replaced by ASC references. Subsequent revisions
to GAAP will be incorporated into the ASC through Accounting Standards Updates
(ASU).
SUBSEQUENT EVENTS
Subsequent events after the balance sheet date through the date that the
financial statements were issued have been evaluated in the preparation of the
Financial Statement.
The following summarizes the significant accounting policies of the Fund:
SECURITY VALUATION AND TRANSACTIONS
The Fund's portfolio securities are valued generally on the basis of market
quotations. Equity securities generally are valued at the last reported sales
price on the primary market in which they are traded. Portfolio securities
listed on NASDAQ are valued using the NASDAQ Official Closing Price, which may
not necessarily represent the last sale price. If no sales occurred on the
exchange or NASDAQ that day, the portfolio security generally is valued using
the last reported bid price.
Debt securities (other than short-term securities described below) generally
are valued at an evaluated bid as reported by an independent pricing service.
Values obtained from pricing services are based on various factors such as
market transactions, dealer supplied valuations, security characteristics and
other market data. In the absence of a reliable price from such a pricing
service, debt securities may be valued based on dealer supplied valuations or
quotations. The Fund's written or purchased options are valued at the last
sales price, or if no sales occurred that day, at the last reported bid price.
Any short-term securities of sufficient credit quality held by the Fund with
remaining maturities of sixty days or less at the time of purchase are valued
on the basis of amortized cost, which approximates market value.
All assets and liabilities of the Fund that are initially expressed in foreign
currency values will be converted into U.S. dollars at the WM/Reuters exchange
rate computed at 11:00 a.m., Eastern time.
If prices are not readily available for a portfolio security, or if it is
believed that a price for a portfolio security does not
18
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
represent its fair value, the security may be valued using procedures approved
by the Fund's Board of Directors that are designed to establish its "fair"
value.
Foreign securities may be valued with the assistance of an independent fair
value pricing service in circumstances where it is believed that they have been
or would be
materially affected by events occurring after the close of the portfolio
security's primary market and before the close of regular trading on the NYSE.
This independent fair value pricing service uses a computerized system to
appraise affected securities and portfolios taking into consideration various
factors and the fair value of such securities may be something other than the
last available quotation or other market price.
GEAM may also separately monitor portfolio securities and, consistent with the
Fund's fair value procedures, apply a different value to a portfolio security
than would be applied had it been priced using market quotations or by an
independent fair value pricing service.
Determining the fair value of securities involves the application of both
subjective and objective considerations. Security values may differ depending
on the methodology used to determine their values, and may differ from the last
quoted sale or closing price. No assurance can be given that use of these fair
value procedures will always better represent the price at which the Fund could
sell the affected portfolio security.
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities. For example, money
market securities are valued using amortized cost, in accordance with the
Investment Company Act of 1940. Generally, amortized cost reflects the current
fair value of a security, but since the value is not obtained from a quoted
price in an active market, such securities are reflected as Level 2. Fair value
determinations are required for securities whose value is affected by a
significant event that will materially affect the value of a domestic or
foreign security and which occurs subsequent to the time of the close of the
principal market on which such domestic or foreign security trades but prior to
the calculation of the Fund's NAV.
Security transactions are accounted for as of the trade date. Realized gains
and losses on investments sold are recorded on the basis of identified cost for
both financial statement and federal tax purposes.
FAIR VALUE MEASUREMENTS
The Fund adopted ASC 820, FAIR VALUATION MEASUREMENTS AND DISCLOSURES effective
January 1, 2008. This guidance establishes a new framework for measuring fair
value and expands related disclosures. Broadly, the framework requires fair
value to be determined based on the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction
between market participants. It also establishes a three-level valuation
hierarchy based upon observable and non-observable inputs.
For financial assets and liabilities, fair value is the price the Fund would
receive to sell an asset or pay to transfer a liability in an orderly
transaction with a market participant at the measurement date. In the absence
of active markets for the identical assets or liabilities, such measurements
involve developing assumptions based on market observable data and, in the
absence of such data, internal information that is consistent with what market
participants would use in a hypothetical transaction that occurs at the
measurement date.
Observable inputs reflect market data obtained from independent sources, while
unobservable inputs reflect our market assumptions. Preference is given to
observable inputs. These two types of inputs create the following fair value
hierarchy:
Level 1 -- Quoted prices for identical investments in active markets.
Level 2 -- Quoted prices for similar investments in active markets; quoted
prices for identical or similar investments in markets that are not active;
and model-derived valuations whose inputs are observable or whose
significant value drivers are observable.
Level 3 -- Significant inputs to the valuation model are unobservable.
Policies and procedures are maintained to value investments using the best and
most relevant data available. In addition, GEAM performs periodic reviews of
the methodologies used by independent pricing services including price
validation of individual securities.
The following section describes the valuation methodologies the Fund uses to
measure different financial investments at fair value.
When available, the Fund uses quoted market prices to determine the fair value
of investment securities, and they
19
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
are included in Level 1. Level 1 securities primarily include publicly-traded
equity securities.
When quoted market prices are unobservable, pricing information is obtained
from an independent pricing vendor. The pricing vendor uses various pricing
models for each asset class that are consistent with what other market
participants would use. The inputs and assumptions to the model of the pricing
vendor are derived from market observable sources including: benchmark yields,
reported trades, broker/dealer quotes, issuer spreads, benchmark securities,
bids, offers, and other market-related data. Since many fixed income securities
do not trade on a daily basis, the methodology of the pricing vendor uses
available information as applicable such as benchmark curves, benchmarking of
like securities, sector groupings, and matrix pricing. The pricing vendor
considers all available market observable inputs in determining the evaluation
for a security. Thus, certain securities may not be priced using quoted prices,
but rather determined from market observable information. These investments are
included in Level 2 and primarily comprise our portfolio of corporate fixed
income, and government, mortgage and asset-backed securities. In infrequent
circumstances, pricing vendors may provide the Fund with valuations that are
based on significant unobservable inputs, and in those circumstances the
investment securities are included in Level 3.
The Fund uses non-binding broker quotes as the primary basis for valuation when
there is limited, or no, relevant market activity for a specific investment or
for other investments that share similar characteristics. The Fund has not
adjusted the prices obtained. Investment securities priced using non-binding
broker quotes are included in Level 3. As is the case with the primary pricing
vendor, third-party brokers do not provide access to their proprietary
valuation models, inputs and assumptions. Accordingly, GEAM conducts internal
reviews of pricing for all such investment securities periodically to ensure
reasonableness of valuations used in our financial statements. These reviews
are designed to identify prices that appear stale, those that have changed
significantly from prior valuations, and other anomalies that may indicate that
a price may not be accurate. Based on the information available, GEAM believes
that the fair values provided by the brokers are representative of prices that
would be received to sell the assets at the measurement date (exit prices).
Other financial investments are derivative investments that are not reflected
in TOTAL INVESTMENTS, such as futures, forwards, swaps, and written options
contracts, which are valued based o the unrealized appreciation/depreciation of
the instrument.
The Fund uses closing prices for derivatives included in Level 1, which are
traded either on exchanges or liquid over-the counter markets. Derivative
assets and liabilities included in Level 2 primarily represent interest rate
swaps, cross-currency swaps and foreign currency and commodity forward and
option contracts. Derivative assets and liabilities included in Level 3
primarily represent interest rate products that contain embedded optionality or
prepayment features.
In January 2010, FASB issued ASU 2010-06, IMPROVING DISCLOSURES ABOUT FAIR
VALUE MEASUREMENTS. ASU 2010-06 will require reporting entities to make new
disclosures about the amounts and reasons for significant transfers in and out
of Level 1 and Level 2 fair value measurements and inputs and valuation
techniques used to measure fair value for both recurring and nonrecurring fair
value measurements that fall in either Level 2 or Level 3, and information on
purchases, sales, issuances, and settlements in the roll forward of activity in
Level 3 fair value measures. The new disclosures are effective for interim and
annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements. Those disclosures are
effect for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. GEAM does not believe the adoption of ASU
2010-06 will materially impact the financial statement amounts.
The following tables present the funds' investments measured at fair value on a
recurring basis at December 31, 2009:
Level 1 Level 2 Level 3 Total
- ---------------------------------------------------------------------------
Investments in Securities+ $5,309,356 $53,792,541 $1,645,864 $60,747,761
Other Financial Instruments+ 72,341 -- -- 72,341
+See Statement of Investments for industry classification.
20
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
Following is a reconciliation of securities activity based on Level 3 inputs
for which unobservable market inputs were used to determine fair value.
INVESTMENTS
IN SECURITIES
- -------------------------------------------------------------------- -------------
Balance at 12/31/08................................................. $ 1,731,013
Accrued discounts/premiums....................................... 171,218
Realized gain (loss)............................................. (1,402,936)
Change in unrealized appreciation (depreciation)................. 960,105
Net purchases (sales)............................................ (25,061)
Net transfers in and out of Level 3.............................. 211,525
- ----------------------------------------------------------------------------------
Balance at 12/31/09................................................. $ 1,645,864
- ----------------------------------------------------------------------------------
Change in Unrealized Gain/(Loss) for the year on level 3 securities
still held at December 31, 2009................................... $ (257,005)
Transfers in and out of Level 3 are considered to occur at the beginning of the
period.
REPURCHASE AGREEMENTS The Fund may engage in repurchase agreement transactions
with respect to instruments that are consistent with the Fund's investment
objectives or policies. The Fund's custodian or a third party custodian takes
possession of the collateral pledged for investments in repurchase agreements
on behalf of the Fund. The Fund values the underlying collateral daily on a
mark-to-market basis to determine that the value, including accrued interest,
is at least equal to 102% of the repurchase price. In the event the seller
defaults and the value of the security declines, or if the seller enters an
insolvency proceeding, realization of the collateral by the Fund may be delayed
or limited.
SECURITY LENDING The Fund may loan securities to brokers, dealers, and
financial institutions determined by GEAM to be creditworthy, subject to
certain limitations. The Fund continues to receive the interest and dividends
on the loaned securities during the term of the loan. The loans of securities
are secured by collateral in the form of cash or other liquid assets, which are
segregated and maintained with the custodian in an amount at least equal to
102% of the current market value of the loaned securities. During the term of
the loan, the Fund will record any gain or loss in the market value of its
loaned securities and of securities in which cash collateral is invested. The
Fund will also earn interest, net of any rebate, from securities in which cash
collateral is invested. In the event the counterparty (borrower) does not meet
its contracted obligation to return the securities, the Fund may be exposed to
the risk of loss of reacquiring the loaned securities at prevailing market
prices using the proceeds of the sale of the collateral.
FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the prevailing rates of exchange
on a daily basis (on days the New York Stock Exchange is open). Purchases and
sales of securities, income receipts and expense payments denominated in
foreign currencies are translated into U.S. dollars at the prevailing exchange
rate on the respective dates of such transactions.
The Fund does not isolate the portion of the results of operations resulting
from changes in foreign exchange rates of foreign denominated securities from
the fluctuations arising from changes in the market prices of those securities
during the period. Such fluctuations are included in the net realized or
unrealized gain or loss from investments. Net realized gains or losses on
foreign currency transactions represent net gains or losses on sales and
maturities of foreign currency contracts, disposition of foreign currencies,
the difference between the amount of net investment income and withholding
taxes accrued and the U.S. dollar amount actually received or paid, and gains
or losses between the trade and settlement date on purchases and sales of
securities. Net unrealized foreign exchange gains and losses arising from
changes in the value of other assets and liabilities as a result of changes in
foreign exchange rates are included as increases or decreases in unrealized
appreciation/ depreciation on foreign currency related transactions.
FUTURES CONTRACTS The Fund may invest in interest rate, financial or stock or
bond index futures contracts subject to certain limitations. The Fund may
invest in futures contracts to manage its exposure to the stock and bond
markets and fluctuations in currency values. Buying futures tends to increase
the Fund's exposure to the underlying instrument while selling futures tends to
decrease the Fund's exposure
21
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
to the underlying instrument , or hedge other Fund investments. The Fund will
not enter into a transaction involving futures for speculative purposes. The
Fund's risks in using these contracts include changes in the value of the
underlying instruments, non-performance of the counterparties under the
contracts' terms and changes in the liquidity of the secondary market for the
contracts. Futures contracts are valued at the settlement price established
each day by the board of trade or exchange on which they principally trade.
Upon entering into a futures contract, the Fund is required to pledge to the
broker an amount of cash and/or other assets equal to a certain percentage of
the contract amount, known as initial margin deposit. Subsequent payments,
known as variation margin, are made or received by the Fund each day, depending
on the daily fluctuation in the fair value of the underlying security. The Fund
records an unrealized gain or loss equal to the daily variation margin. Should
market conditions move unexpectedly, the Fund may not achieve the anticipated
benefits of the futures contracts and may incur a loss. The Fund recognizes a
realized gain or loss on the expiration or closing of a futures contract.
OPTIONS The Fund may purchase and write options, subject to certain
limitations. The Fund may invest in options contracts to manage its exposure to
the stock and bond markets and fluctuations in foreign currency values. Writing
puts and buying calls tend to increase the Fund's exposure to the underlying
instrument while buying puts and writing calls tend to decrease the Fund's
exposure to the underlying instrument, or hedge other Fund investments. The
Fund will not enter into a transaction involving options for speculative
purposes. The Fund's risks in using these contracts include changes in the
value of the underlying instruments, non-performance of the counterparties
under the contracts' terms and changes in the liquidity of the secondary market
for the contracts. Options are valued at the last sale price, or if no sales
occurred on that day, at the last quoted bid price.
When the Fund writes an option, the amount of the premium received is recorded
as a liability and is subsequently adjusted to the current fair value of the
option written. Premiums received from writing options that expire unexercised
are treated by the Fund on the expiration date as realized gains from
investments. The difference between the premium and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium is less than the amount paid
for the closing purchase, as a realized loss. When an option is exercised, the
proceeds from the sale of the underlying security or the cost basis of the
securities purchased is adjusted by the original premium received or paid.
SWAP CONTRACTS As part of the investment strategy, the Fund may invest in swap
agreements, which are agreements to exchange the return generated by one
instrument for the return generated by another instrument. Total return swap
agreements involve commitments to pay interest in exchange for a market linked
return based upon a notional principal amount. To the extent the total return
of the security or index underlying the agreement exceeds or falls short of the
offsetting interest rate obligation, the Fund will receive a payment from or
make a payment to the counterparty. Swaps are marked to market daily based upon
the underlying security or index. Payments received or made are recorded as
realized gain or loss in the Statement of Operations. Entering into swap
agreements involves, to varying degrees, elements of credit and market risk in
excess of the amounts recognized on the Statement of Assets and Liabilities.
Such risks involve the possibility that there will be no liquid market for
these agreements, that the counterparty to the agreements may default on its
obligation to perform and that there may be unfavorable changes in the value of
the index or securities underlying the agreement. Notional principal amounts
are used to express the extent of involvement in these transactions, but the
amounts potentially subject to credit risk are much smaller.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The Fund may purchase or sell securities on a when-issued or forward commitment
basis. These transactions are arrangements in which the Fund purchases and
sells securities with payment and delivery scheduled a month or more after
entering into the transactions. The price of the underlying securities and the
date when these securities will be delivered and paid for are fixed at the time
the transaction is negotiated. Losses may arise due to changes in the market
value of the underlying securities or if the counterparty does not perform
under the contracts. In connection with such purchases, the Fund maintains cash
or liquid assets in an amount equal to purchase commitments for such underlying
securities until settlement date and for sales commitments, the Fund maintains
equivalent deliverable securities as "cover" for the transaction. Unsettled
commitments are valued at the
22
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
current market value of the underlying security. Daily fluctuations in the
value of such contracts are recorded as unrealized gains or losses. The Fund
will not enter into such commitments for the purpose of investment leverage.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts to facilitate transactions in foreign
denominated securities and to manage the Fund's currency exposure. Forward
foreign currency exchange contracts are valued at the mean between the bid and
the offered forward rates as last quoted by a recognized dealer. The aggregate
principal amounts of the contracts are not recorded in the Fund's financial
statements. Such amounts appear under the caption forward foreign currency
contracts in the Schedule of Investments. Fluctuations in the value of the
contracts are recorded in the Statement of Assets and Liabilities as an asset
(or liability) and in the Statement of Operations as unrealized appreciation
(depreciation) until the contracts are closed, when they are recorded as
realized gains or losses on foreign currency related transactions. The Fund's
risks in using these contracts include changes in the value of foreign currency
or the possibility that the counterparties do not perform under the contracts'
terms. When the Fund enters into a forward foreign currency exchange contract,
it is required to segregate cash or liquid securities with its custodian in an
amount equal to the value of the Fund's total assets committed to the
consummation of the forward contract. If the value of the segregated securities
declines, additional cash or securities is segregated so that the value of the
account will equal the amount of the Fund's commitment with respect to the
contract.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for
federal income tax purposes.
The Fund is subject to ASC 740, INCOME TAXES. ASC 740 provides guidance for
financial accounting and reporting for the effects of income taxes that result
from an entity's activities during the year. ASC 740 also provides guidance
regarding how certain uncertain tax positions should be recognized, measured,
presented and disclosed in the financial statements. ASC 740 requires
evaluation of tax positions taken or expected to be taken in the course of
preparing the Funds' tax returns to determine whether the tax positions are
"more likely than not" of being sustained by the applicable tax authority.
There are no adjustments to the Funds' net assets required under ASC 740. The
Funds' 2006, 2007, 2008 and 2009 fiscal years tax returns are still open to
examination by the Federal and applicable state tax authorities."
At December 31, 2009, information on the tax cost of investments is as follows:
Net Tax
Appreciation/ Undistributed
Net Tax (Depreciation) on Undistributed Long-Term
Cost of Gross Tax Gross Tax Appreciation/ Derivatives, Income/ Gains Post October
Investments for Unrealized Unrealized (Depreciation) on Currency and (Accumulated (Accumulated Losses (see
Tax Purposes Appreciation Depreciation Investments other Net Assets Ordinary Loss) Capital Loss) Detail Below)
- --------------------------------------------------------------------------------------------------------------------------------
$61,034,578 $2,220,400 $(2,507,217) $(286,817) $-- $2,589 $(12,108,156) $--
23
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
As of December 31, 2009, the Fund has capital loss carryovers as indicated
below. Capital loss carryovers are available to offset future realized capital
gains to the extent provided in the Internal Revenue Code and regulations
thereunder. To the extent that these carryover losses are used to offset future
capital gains, it is probable that the gains so offset will not be distributed
to shareholders because they would be taxable as ordinary income.
Amount Expires
---------------------------------------------------
$1,055,894 12/31/2013
1,322,182 12/31/2014
1,315,125 12/31/2015
972,866 12/31/2016
7,442,089 12/31/2017
Any net capital and currency losses incurred after October 31, within the
Fund's tax year, are deemed to arise on the first day of the Fund's next tax
year if the Fund so elects to defer such losses.
The Fund elected to defer losses incurred after October 31, 2009 as follows:
Capital Currency
---------------------------------------------------
$-- $--
The tax composition of distributions paid during the years ended December 31,
2009 and December 31, 2008 were as follows:
Long-Term
Capital
Ordinary Income Gains Return of Capital Total
- -----------------------------------------------------------------------------------------------------------------
2009 $2,473,213 $-- $-- $2,473,213
2008 4,014,342 -- 49,303 4,063,645
DISTRIBUTIONS TO SHAREHOLDERS The Fund declares and pays dividends from net
investment income annually. The Fund declares and pays net realized capital
gains in excess of capital loss carryforwards distributions annually. The
character of income and gains to be distributed is determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences include (but are not limited to) futures,
treatment of realized gains and losses on foreign currency contracts and losses
deferred due to wash sale transactions. Reclassifications due to permanent
book/tax differences are made to the Fund's capital accounts to reflect income
and gains available for distribution (or available capital loss carryovers)
under income tax regulations. These reclassifications have no impact on net
investment income, realized gains or losses, or the net asset value of the
Fund. The calculation of net investment income per share in the Financial
Highlights table excludes these adjustments.
The reclassifications for the year ended December 31, 2009 were as follows:
Undistributed
(Distribution
in Excess of)
Net Investment Accumulated Paid in
Income Net Realized Gain Capital
-----------------------------------------------------------------------------
$(429) $429 $--
INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on
the ex-dividend date, net of applicable withholding taxes, except for certain
foreign corporate actions, which are recorded as soon after ex-dividend date as
such information becomes available. Interest income is recorded on the accrual
basis. All discounts and premiums on bonds are accreted and amortized,
respectively, to call or maturity date, whichever is shorter, using the
effective yield method.
EXPENSES Fund specific expenses are allocated to the Fund that incurs such
expense and pro rata across share classes. Expenses, other than those incurred
by a specific Fund, are allocated pro rata among Funds and share classes. Such
expenses may include custodial fees, legal and accounting fees, printing costs
and registration fees. All expenses of the Fund are paid by GEAM and reimbursed
by the Fund. Certain class specific expenses (such as transfer agency fees or
distribution fees) are allocated to the class that incurs such expense.
DERIVATIVE INSTRUMENTS
The Fund is subject to equity price risk, interest rate risk, and foreign
currency exchange rate risk in the normal course of pursuing their investment
objectives. The Fund entered into derivative transactions for the purpose of
hedging against the effects of changes in the value of portfolio securities due
to anticipated changes in market conditions, to gain market exposure for
residual and accumulating cash positions, and for managing the duration of
fixed-income investments. A futures contract represents a commitment for the
future purchase or sale of an asset at a specified price on a specified date.
Upon entering into such contracts, the Fund is required to deposit with the
broker, either in cash or securities, an initial margin in an amount equal to a
certain percentage of the contract
24
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
amount. Subsequent payments (variation margin) are made or received by the Fund
each day, depending on the daily fluctuations in the value of the contract, and
are recorded for financial statement purposes as unrealized gains or losses by
the Fund. Upon entering into such contracts, the Fund bears the risk of
interest or exchange rates or securities prices moving unexpectedly, in which
case, the Fund may not achieve the anticipated benefits of the futures
contracts and may realize a loss. With futures contracts, there is minimal
counterparty credit risk to the Fund since futures contracts are exchange
traded and the exchange's clearinghouse, as counterparty to all traded futures,
guarantees the futures against default.
Shown below are the derivative contracts entered into by the Fund, summarized
by primary risk exposure.
Asset Derivatives December 31, 2009 Liability Derivatives December 31, 2009
----------------------------------------------------------------------------------
Derivatives not
--accounted for as Location in Notional Location in Notional
hedging the Statements Value/No. of the Statements Value/No. of
instruments under FASB of Assets Contracts Fair of Assets Contracts Fair
ASC 815 and Liabilities Long/(Short) Value and Liabilities Long/(Short) Value
- ------------------------------------------------------------------------------------------------------------
Interest Rate Contracts Receivables, Net 2,593,305/20 (32,305)* (4,040,859)/35 104,646*
Assets -- Payables, Net
Unrealized Assets --
Appreciation/ Unrealized
(Depreciation) on Appreciation/
futures (Depreciation)
- ------------------------------------------------------------------------------------------------------------
* INCLUDES CUMULATIVE APPRECIATION/DEPRECIATION OF FUTURES CONTRACTS AS
REPORTED IN THE SCHEDULE OF INVESTMENTS AND EQUITY SECTION OF THE STATEMENT
OF ASSETS AND LIABILITIES. ONLY THE CURRENT DAY'S VARIATION MARGIN IS
REPORTED WITHIN THE RECEIVABLES AND/OR PAYABLES STATEMENT OF ASSETS AND
LIABILITIES.
Shown below are the effects of derivative instruments on the Fund's Statements
of Operations, summarized by primary risk exposure.
Change in Unrealized
Derivatives not Total Number of Appreciation/
accounted for as hedging Location in the Futures/Options Realized Gain or (Depreciation)
instruments Statements of Contracts Purchased/ (Loss) on Derivatives on Derivatives
under FASB ASC 815 Operations (Sold) Recognized in Income Recognized in Income
- -------------------------------------------------------------------------------------------------------------------
Interest Rate Contracts Net realized gain/(loss) 819/(866) 140,719 (62,357)
on futures, Increase/
(decrease) in unrealized
appreciation/
(depreciation) on
futures
- -------------------------------------------------------------------------------------------------------------------
3. LINE OF CREDIT
The Company shares a revolving credit facility of up to $150 million with a
number of its affiliates. The credit facility is with its custodian bank, State
Street Bank and Trust Company. The revolving credit facility requires the
payment of a commitment fee equal to 0.15% per annum on the daily unused
portion of the credit facility, payable quarterly. The portion borne by the
Funds generally is borne proportionally based upon net assets. In addition, the
Company has a $100 million uncommitted, unsecured line of credit with State
Street. Generally, borrowings under the credit facilities would accrue interest
at the Federal Funds Rate plus 50 basis points and would be borne by the
borrowing Fund. The maximum amount allowed to be borrowed by any one Fund is
the lesser of (i) its prospectus limitation or (ii) 20% of its net assets. The
credit facilities were not utilized by the Fund during the fiscal year ended
December 31, 2009.
25
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
4. AMOUNTS PAID TO AFFILIATES
ADVISORY AND ADMINISTRATION FEES GEAM, a registered investment adviser, was
retained by the Company's Board of Directors effective November 15, 1997 to act
as investment adviser and administrator of the Fund. Compensation of GEAM for
investment advisory and administrative services is paid monthly based on the
average daily net assets of the Fund at an annualized rate of 0.50%.
GEAM waives a portion of the Fund's management fee in the amount equal to the
management fee earned by GEAM with respect to the Fund's investment in the
GE Funds -- GE Money Market Fund.
GENPACT performs certain accounting and certain administration services not
provided by GEAM. For the period ended December 31, 2009, $1,174 was charged to
the Fund.
DISTRIBUTION AND SERVICE (12B-1) FEES The Company has adopted a Distribution
and Service (12b-1) Plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act
with respect to Class 4 shares of the Fund. Under the Plan, the Fund may
compensate GE Investment Distributors, Inc. ("GEID"), a wholly-owned subsidiary
of GEAM and the Fund's principal distributor, for certain sales services
provided by GEID or other broker dealers and investor services provided by GEID
or other service providers relating to the Fund's Class 4 shares, including
services to owners or prospective owners of variable contracts issued by
insurance companies that offer such share class as an investment option. The
amount of compensation paid under the Plan by the Fund's Class 4 shares may not
exceed 0.45% of the average daily net assets of the Fund attributable to such
share class. The Plan continues in effect from year to year for so long as such
continuance is approved annually by the Board of Directors, including by those
directors who are not interested persons of the Company and who have no direct
or indirect financial interest in the operation of the Plan or in any agreement
related to it.
DIRECTORS' COMPENSATION The Fund pays no compensation to its directors who are
officers or employees of GEAM or its affiliates. Directors who are not such
officers or employees also serve in a similar capacity for other funds advised
by GEAM. Compensation paid to unaffiliated directors are reflected on the
Statement of Operations. These fees are allocated pro rata across all of the
mutual fund platforms and share classes served by the directors, including the
Fund, and are based upon the relative net assets of each fund within such
platforms. (For additional information about directors compensation please
refer to the Statement of Additional Information.)
5. INVESTMENT TRANSACTIONS
PURCHASES AND SALES OF SECURITIES The cost of purchases and the proceeds from
sales of investments, other than short-term securities and options, for the
period ended December 31, 2009 were as follows:
U.S. Government Securities
-----------------------------------------------------
Purchases Sales
-----------------------------------------------------
$107,088,666 $130,434,136
Other Securities
-----------------------------------------------------
Purchases Sales
-----------------------------------------------------
$48,672,486 $43,095,501
SECURITY LENDING At December 31, 2009, and for the year then ended the Fund did
not participate in securities lending.
26
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the Income Fund, a series of GE
Investments Funds, Inc., as of December 31, 2009, and the related statement of
operations for the year then ended, statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years or periods in the five-year period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of December 31, 2009 by
correspondence with the custodian and brokers, or by other appropriate auditing
procedures where replies from brokers were not received. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Income Fund as of December 31, 2009, the results of its operations, changes in
its net assets and financial highlights for each of the years or periods
described above, in conformity with U.S. generally accepted accounting
principles.
/s/ KPMG LLP
Boston, Massachusetts
February 25, 2010
27
Advisory and Administrative Agreement Renewal (unaudited)
- ------------------------------------------------------------------------------
The Board of Directors of the GE Investments Funds, Inc. (the "Board"),
including the independent Board members, considered and all those that were
present unanimously approved the continuance of the Fund's Investment Advisory
and Administration Agreement with GE Asset Management Incorporated ("GEAM") at
meetings held on December 4 and December 11, 2009.
In considering whether to approve the Fund's investment advisory agreement, the
Board members considered and discussed a substantial amount of information and
analysis provided, at the Board's request, by GEAM. The Board members also
considered detailed information regarding performance and expenses of other
investment companies, including those with similar investment objectives and
sizes, which was prepared by independent third party providers, Lipper
Analytical Services Inc. ("Lipper") and Morningstar, Inc. ("Morningstar"). The
Board members reviewed the fees charged by GEAM for other mutual funds and
investment products other than mutual funds that employ the same investment
strategy as the Fund. The Board had the opportunity to ask questions and
request additional information in connection with its considerations.
Before approving the Fund's advisory agreement, the Board members reviewed the
information provided with management of GEAM and with independent legal
counsel. The Board members also reviewed a memorandum prepared by independent
legal counsel discussing the legal standards for the consideration of the
proposed continuance. The independent Board members discussed the proposed
continuance in detail during a private session with their independent legal
counsel at which no representatives of GEAM were present. The independent Board
members and their independent legal counsel requested, and received and
considered, additional information from GEAM following this session.
In advance of the meetings, and in response to their request, the Board members
received from GEAM written responses to their inquiries, which included
substantial exhibits and other materials related to GEAM's business and the
services it provides to the Fund. The Board members took into account their
multi-year experience as Board members and particularly their consideration of
these types of agreements in recent years. The information was presented in a
manner to facilitate comparison to prior periods and to reflect certain
enhancements. To focus their review, the Board members asked GEAM management,
in its oral presentation, to highlight material differences from the
information presented in recent years.
During the meetings, the Board members had an opportunity to discuss this
information with GEAM managers, including senior executives, representatives
from the legal, compliance and finance departments, and investment personnel.
The Board members posed questions to these representatives and engaged in
substantive discussions with them concerning GEAM's investment process.
In reaching their determination relating to continuance of the Fund's
investment advisory agreement, the Board members considered all factors that
they deemed relevant, including the factors discussed below. In their
deliberations, the Board members did not identify any particular information
that was all-important or controlling, and each Board member may have
attributed different weights to the various factors. In particular, the Board
members focused on the following:
THE NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED.
The Board members reviewed the services provided by GEAM, taking into account
their extensive past experiences with GEAM. They focused on the favorable
attributes of GEAM, including (i) an investment philosophy oriented toward
long-term performance; (ii) effective processes used for selecting investments
and brokers; (iii) effective processes used for providing Fund administration,
including controllership and compliance functions and oversight of the
performance of other companies that provide services to the Funds; (iv) highly
skilled professionals including analysts, research professionals, traders and
portfolio managers with a depth of experience involving the types of Funds they
oversee; (v) access to significant technological resources from which the Funds
may benefit; and (vi) a favorable history and reputation. The Board members
discussed with senior officers of GEAM the personnel changes made, and proposed
to be made, by GEAM. The Board members noted that the Fund represents only a
small portion of the assets managed by GEAM, but benefits from a full array of
services and resources provided by GEAM.
In light of these discussions, the Board, including the independent Board
members, concluded that GEAM's services continue to be satisfactory.
INVESTMENT PERFORMANCE OF THE FUND.
The Board members considered the investment performance of the Fund for various
periods. The Board members reviewed detailed comparisons of the
28
Advisory and Administrative Agreement Renewal (unaudited)
- ------------------------------------------------------------------------------
performance of the Fund with the relevant securities indices and peer groupings
of mutual funds prepared by Lipper and Morningstar with respect to various
periods. The Board members also engaged in detailed discussions with GEAM
management about the investment process and performance results. These
discussions focused on the Fund's investment objective, the number and
experience of portfolio management and supporting research personnel, the
investment style and approach employed, the likely market cycles for the
investment style and relative underperformance in certain periods. The Board
members discussed GEAM's investment approach with respect to the Fund, and that
the performance of the Fund is consistent with GEAM's articulated long-term
approach and overall investment philosophy.
The Board, including the independent Board members, concluded that the Fund's
performance was acceptable overall taking into consideration the factors
discussed above.
COST OF THE SERVICES PROVIDED AND PROFITS REALIZED FROM THE RELATIONSHIP WITH
THE FUND.
The Board members considered the fees paid to GEAM by the Fund and the cost of
the services provided to the Fund by GEAM. The Board members reviewed the
information they had requested from GEAM concerning its profitability. The
Board members considered the profit margin information for GEAM's investment
company business as a whole, as well as GEAM's profitability data for the Fund.
The Board members reviewed GEAM's assumptions and the methods of cost
allocation used by GEAM in preparing Fund-specific profitability data. The
Board members also discussed with GEAM the basis for its belief that the
methods of allocation used were reasonable for each area of its business.
Information was presented regarding the financial condition of GEAM for various
past periods. The Board members noted and discussed the additional services
provided by GEAM to the Fund compared to other investment products managed by
GEAM, and were provided a study conducted by the Investment Company Institute
that discusses and compares advisory fees and services for mutual funds and
institutional separate accounts. The Board members determined that GEAM should
be entitled to earn a reasonable level of profits for the services it provides
to the Fund. The Board members also recognized that GEAM had made significant
investments in its business and had not fully recovered the sums invested. The
Board also considered that, in the face of overall declining assets and
revenues over the course of the past year, GEAM continues to make a substantial
investment in fulfilling its obligations to the Fund and supporting its
Fund-related activities.
Based on their review, the Board, including the independent Board members,
concluded that they were satisfied that the level of profitability achieved by
GEAM from its relationship with the Fund was not unreasonable or excessive.
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS AND
WHETHER FEE LEVELS WOULD REFLECT SUCH ECONOMIES OF SCALE.
Although the Board noted that the Fund did not experience significant growth in
assets over the past year, the Board members considered the extent to which
economies of scale would be realized as the Fund grows, and whether fee levels
reflect these economies of scale for the benefit of Fund investors. The Board
members considered the substantial infrastructure investments that GEAM has
made with respect to its operations and its commitment to continue investing
resources to enhance services to Fund shareholders. The Board members
recognized the benefits to the Fund of GEAM's past investment in its operations
through the expenditure of sums to support its substantial infrastructure, and
that, with respect to all GEAM managed mutual funds, GEAM has not yet fully
recouped that investment. The Board members also recognized the benefits to the
Fund of being able to leverage a favorable cost structure achieved with respect
to the Fund's other operating expenses as a result of GEAM's large overall base
of assets under management and its vendor management practices.
COMPARISON OF SERVICES TO BE RENDERED AND FEES TO BE PAID.
The Board members discussed the services provided to the Fund by GEAM, and the
fees charged for those services. The Board members reviewed information
concerning the fee and expense ratios for the Fund, and comparative information
with respect to similar products. They discussed that the Fund's figures were
within the applicable peer group range, although at the higher end of the
range. In light of the foregoing, the Board members, including the independent
Board members, determined that the advisory fees were reasonable in relation to
the services provided to the Fund.
29
Advisory and Administrative Agreement Renewal (unaudited)
- ------------------------------------------------------------------------------
FALL-OUT BENEFITS.
The Board members considered other actual and potential financial benefits that
GEAM may derive from its relationship with the Fund, including, to the extent
applicable, soft dollar commission benefits generated through Fund portfolio
transactions. The Board members noted, however, that the Fund benefits from the
vast array of resources available through GEAM, and that the Fund represents
only a small portion of the assets managed by GEAM.
CONCLUSION.
No single factor was determinative to the Board's decision. Based on their
discussion and such other matters as were deemed relevant, the Board, including
the independent Board members, concluded that renewal of the advisory agreement
was in the best interests of the Fund and its shareholders.
30
Additional Information (unaudited)
- ------------------------------------------------------------------------------
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS:
The business and affairs of the Company are managed under the direction of the
Company's Board of Directors. Information pertaining to the Directors and
officers of the Company is set forth below.
INTERESTED DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
MICHAEL J. COSGROVE
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
POSITION(S) HELD WITH FUND Chairman of the Board and President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS President and Chief Executive
Officer - Mutual Funds and Intermediary Business since March 2007; Executive
Vice President of GEAM from February 1997 to March 2007; Director of GEAM since
1988; Vice President, GE Capital Corporation, an indirect wholly-owned
subsidiary of GE, since December 1999; Executive Vice President - Sales and
Marketing of GEAM, a wholly-owned subsidiary of GE that is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, from
March 1993 to March 2007.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 51
OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE
Funds since 1993, and GE Institutional Funds since its inception; Trustee of
General Electric Savings & Security Trust, General Electric S&S Income Fund,
General Electric S&S Program Mutual Fund ("GE Savings & Security Funds"), Elfun
Funds, General Electric Insurance Plan Trust, General Relief Loan Fund, and
General Electric Pension Trust since 1988; Trustee of Fordham University since
2002; Trustee of GE Volunteers since 1993; Director, GE Asset Management
(Ireland) since February 1999; Director, GE Asset Management Funds Plc., GE
Asset Canada Company, and GE Asset Management Limited since 1998.
- --------------------------------------------------------------------------------
MATTHEW J. SIMPSON
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 48
POSITION(S) HELD WITH FUND Director and Executive Vice President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 2 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President, General
Counsel and Secretary of GEAM since July 2007; Senior Vice President and
General Counsel - Marketing and Client Services (formerly Asset Management
Services), at GEAM and Senior Vice President and General Counsel of GEAMS from
February 1997 to June 2007; Vice President and Associate General Counsel of
GEAM from October 1992 to February 1997; Secretary of Fund from 1997 to June
2007; Vice President of Fund from September 2003 to June 2007; Vice President
of GE Institutional Funds from September 2003 to June 2007; Secretary of GE
Institutional Funds and GE LifeStyle Funds from 1997 to June 2007; Vice
President of Elfun Funds and GE Savings & Security Funds from October 2003 to
June 2007; Assistant Secretary of Elfun Funds and GE Savings & Security Funds
from 1998 to June 2007.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 51
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds, GE Institutional
Funds, Elfun Funds and GE Savings & Security Funds since July 2007.
31
Additional Information (unaudited)
- ------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCOTT H. RHODES
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 49
POSITION(S) HELD WITH FUND Treasurer
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 3 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS GEAM Mutual Funds Operations
Manager since September 2005; Treasurer of GE Institutional Funds, GE LifeStyle
Funds and GE Investments Funds since November 2005 and Elfun Funds and GE
Savings & Security Funds since September 2005; from August 2004 to September
2005 Vice President, U.S. Trust Company, N.A. and Assistant Treasurer of
Excelsior Funds, Inc., Excelsior Funds Trust, and Excelsior Tax Exempt Funds,
Inc.; from January 2004 to August 2004, Vice President BlackRock Financial
Management, Inc.; from December 1996 to November 2003, Controller - Mutual
Funds, American Skandia Investment Services, Inc. and Assistant Treasurer of
American Skandia Trust and American Skandia Advisor Funds, Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
JEANNE M. LAPORTA
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 44
POSITION(S) HELD WITH FUND Vice President and Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 5 years (Vice President); 3 years (Secretary)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Senior Vice President and Deputy
General Counsel at GE Asset Management since October 2007; Vice President and
Associate General Counsel - Marketing and Client Services (formerly Asset
Management Services) at GEAM from May 1997 to October 2007; Vice President and
Assistant Secretary of GE Funds and GE Institutional Funds from September 2003
to July 2007; Vice President and Secretary of GE Funds and GE Institutional
Funds since July 2007; Vice President and Assistant Secretary of Elfun Funds
and GE Savings & Security Funds since October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
32
Additional Information (unaudited)
- ---------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 63
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS General Partner, NGN Capital LLC
since 2006; Managing Director, Vice President of Walden Capital Management
since 1996.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, GE
Institutional Funds since its inception; Trustee of Fordham University from
1989 to 1995 and 2001 to 2007 and Trustee Emeritus since 2007; Trustee of Neuro
Science Research Institute since 1986; Trustee of Gregorian University
Foundation from 1992 to 2007; Director of Artes medical from 2006 to 2008.
- --------------------------------------------------------------------------------
WILLIAM J. LUCAS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 61
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Treasurer of
Fairfield University since 1983.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds since its inception.
- --------------------------------------------------------------------------------
ROBERT P. QUINN
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 74
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon
Brothers Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds since its inception; Trustee, St. Francis Hospital Corp.
The Statement of Additional Information for the Fund includes additional
information about the Directors and Officers and is available, without charge,
upon request by calling 1-800-493-3042.
33
Investment Team
- -------------------------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
GE Asset Management Incorporated
BOARD OF DIRECTORS
Michael J. Cosgrove, CHAIRMAN
John R. Costantino
William J. Lucas
Robert P. Quinn
Matthew J. Simpson
SECRETARY
Jeanne M. LaPorta
ASSISTANT SECRETARIES
Joseph A. Carucci
Joon Won Choe
Kimberley Costello
Michelle Matzelle
TREASURER
Scott H. Rhodes
ASSISTANT TREASURERS
Scott R. Fuchs
Christopher M. Isaacs
DISTRIBUTOR
GE Investment Distributors, Inc.
Member FINRA and SIPC
COUNSEL
Sutherland, Asbill & Brennan, LLP
CUSTODIAN
State Street Bank & Trust Company
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
OFFICERS OF THE INVESTMENT ADVISER
James W. Ireland, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Cheryl H. Beacock, SENIOR VICE PRESIDENT, HUMAN RESOURCES
Daniel O. Colao, EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER
Michael J. Cosgrove, PRESIDENT AND CHIEF EXECUTIVE OFFICER - MUTUAL FUNDS &
INTERMEDIARY BUSINESS
Paul M. Colonna, PRESIDENT AND CHIEF INVESTMENT OFFICER - FIXED INCOME
INVESTMENTS
Amiel Goldberg, SENIOR VICE PRESIDENT, CHIEF RISK OFFICER
Ralph R. Layman, PRESIDENT AND CHIEF INVESTMENT OFFICER - PUBLIC EQUITY
INVESTMENTS (SINCE JULY 2009)
Maureen B. Mitchell, PRESIDENT - INSTITUTIONAL SALES AND MARKETING (SINCE JULY
2009)
Matthew J. Simpson, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
Judith A. Studer, CHIEF MARKET STRATEGIST (SINCE JULY 2009)
Don W. Torey, PRESIDENT - ALTERNATIVE INVESTMENTS
John J. Walker, EXECUTIVE VICE PRESIDENT, CHIEF OPERATING OFFICER
David Wiederecht, PRESIDENT - INVESTMENT STRATEGIES
34
INVESTMENT ADVISER
GE ASSET MANAGEMENT INCORPORATED
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
DISTRIBUTOR
GE INVESTMENT DISTRIBUTORS, INC.
MEMBER FINRA AND SIPC
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission for the first and third quarters of each
fiscal year on Form N-Q. The Fund's Forms N-Q, as well as a description of
the policies and procedures that the Fund uses to determine how to vote
proxies (if any) relating to portfolio securities is available without
charge (i) upon request, by calling 1-800-493-3042; (ii) on the Fund's
website at http://www.geam.com; and (iii) on the Commission's website at
http://www.sec.gov. The Fund's Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC--information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to
portfolio securities during the most recently disclosed 12-month period
ended June 30 is available without charge (i) through the Fund's website at
http://www.geam.com; and (ii) on the Commission's website at
http://www.sec.gov.
[LOGO] GE
GE Investments Funds, Inc.
Core Value Equity Fund
Annual Report
December 31, 2009
[LOGO] GE
GE Investments Funds, Inc.
Core Value Equity Fund Contents
- ------------------------------------------------------------
NOTES TO PERFORMANCE.................................... 1
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS.............. 2
NOTES TO SCHEDULE OF INVESTMENTS........................ 9
FINANCIAL STATEMENTS
Financial Highlights................................. 10
Statement of Assets and Liabilities.................. 11
Statement of Operations.............................. 12
Statements of Changes in Net Assets.................. 13
Notes to Financial Statements........................ 14
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. 22
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL........... 23
ADDITIONAL INFORMATION.................................. 26
INVESTMENT TEAM......................................... 29
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
Notes to Performance December 31, 2009
- ---------------------------------------------------------------------
Information on the following performance pages relating to the GE Investments
Core Value Equity Fund one year total return and Schedule of Investments is
audited. All other information, including the portfolio manager Q&A pages, is
unaudited.
Total returns take into account changes in share price and assume reinvestment
of all dividends and capital gains distributions, if any. Total returns shown
are net of Fund expenses but do not reflect fees and charges associated with
the variable contracts such as administrative fees, account charges and
surrender charges, which, if reflected, would reduce the Fund's total returns
for all periods shown.
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be higher or lower than the performance
data quoted. Periods less than one year are not annualized. Please call
800-493-3042 or visit the Fund's website at http://www.geam.com for the most
recent month-end performance data.
An investment in a Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency. An investment in a Fund is subject to risk, including
possible loss of principal invested.
The Standard & Poor's ("S&P") 500(R) Composite Price Index of stocks (S&P 500
Index) is an unmanaged index and does not reflect the actual cost of investing
in the instruments that comprise the index.
The S&P 500 Index is an unmanaged, market capitalization-weighted index of
stocks of 500 large U.S. companies, which is widely used as a measure of
large-cap stock market performance. The results shown for the foregoing index
assume the reinvestment of net dividends or interest.
The peer universe of the underlying annuity funds used in our peer group
average return calculation is based on the blend of Morningstar peer
categories, as shown. Morningstar is an independent mutual fund rating service.
A Fund's performance may be compared to or ranked within a universe of mutual
funds with investment objectives and policies similar but not necessarily
identical to the Fund's.
(C)2009 Morningstar, Inc. All Rights Reserved. The information contained
herein: (1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is no warranted to be accurate, complete
or timely. Neither Morningstar nor its content providers are responsible for
any damage or losses relating from any use of this information. Past
performance is no guarantee or future results.
- --------------
GE INVESTMENT DISTRIBUTORS, INC., MEMBER OF FINRA & SIPC, IS THE PRINCIPAL
UNDERWRITER AND DISTRIBUTOR OF THE GE INVESTMENT FUNDS, INC. AND A WHOLLY OWNED
SUBSIDIARY OF GE ASSET MANAGEMENT INCORPORATED, THE INVESTMENT ADVISER OF THE
FUND.
1
Core Value Equity Fund
- --------------------------------------------------------------------------------
[PHOTO] Stephen V. Gelhaus
Stephen V. Gelhaus
[PHOTO] Paul C. Reinhardt
Paul C. Reinhardt
The Core Value Equity Fund is co-managed by Paul C. Reinhardt and Stephen V.
Gelhaus. Messrs. Reinhardt and Gelhaus both manage the Fund as a collaborative
team. Both portfolio managers have the authority to increase or decrease
existing positions in the Fund; however, Mr. Reinhardt, as lead manager, is
vested with the authority to purchase securities that are new to the Fund or to
divest the Fund of its entire position in a security. Mr. Reinhardt also has
veto authority over Mr. Gelhaus' trade decisions.
Paul Reinhardt is a Senior Vice President of GE Asset Management and lead
portfolio manager of the Core Value Equity Fund. He has served in this capacity
since April 2002. Mr. Reinhardt joined GE Asset Management in 1982 as an equity
analyst and has been a portfolio manager since 1987.
Stephen V. Gelhaus is a Vice President of GE Asset Management. He has been a
member of the portfolio management team for the Core Value Equity Fund since
January 2002. Mr. Gelhaus joined GE Asset Management in June 1991 and was a
research analyst in the U.S. equities group from 1995 through 2001 and became
an associate portfolio manager for the Core Value Equity Fund in August 1999.
Q. How did the Core Value Equity Fund perform compared to its benchmark and
Morningstar peer group for the twelve-month period ended December 31, 2009?
A. For the twelve-month period ended December 31, 2009, the Core Value Equity
Fund returned 25.40% for Class 1 shares and 24.74% for Class 4 shares. The
S&P 500 Index, the Fund's benchmark, returned 26.46% and the Fund's
Morningstar peer group of 464 US Insurance Large Blend funds returned an
average of 28.47% for the same period.
Q. What market conditions impacted Fund performance?
A. The U.S. equity markets fell sharply through early March against a backdrop
of severe global economic recession, falling home prices, and the prospect
of huge losses by global financial institutions. After the U.S. government
passed a $790 billion stimulus bill and the Federal Reserve announced plans
to pump $1.25 trillion into the economy, the S&P 500 rallied 67% through
year-end off its March 9 intraday low. In addition to the unprecedented
fiscal and monetary stimulus, stocks were supported by earnings reports in
the second and third quarter that generally beat expectations, a pick-up in
corporate acquisition activity, and strong free cash flow as companies cut
capital spending and reduced their cost structures. Despite this strong
snap-back, the S&P 500 still remained 29% below the high it reached in
October 2007. The federal funds target rate has remained historically low --
close to zero -- for a full year, and the U.S. equity markets have applauded
the Federal Reserve's pledge to keep interest rates low for an "extended
period."
Sector allocation has been important in this environment, as only the
technology (+62%), materials (+49%), and consumer discretionary (+42%)
sectors outperformed the S&P 500 in 2009 while the more defensive sectors
lagged. Despite a 78% rise in the WTI crude price over the year, the S&P 500
Energy sector rose only 14% in 2009, well below the 26.5% rally of the
broader S&P 500 Index. In this context, the growth style of investing
outperformed the value style, with the strongest returns coming from medium
capitalization companies. Careful stock selection was warranted in the
financials sector, which plummeted 29% in the first quarter but advanced a
whopping 140% off of March lows, reflecting relief that the sector would
remain intact. This was reinforced by the fact that most large U.S. banks
passed their stress tests and credit markets strengthened. By year-end,
several large commercial and investment banks had reimbursed the U.S.
Treasury for the government TARP investments. Going forward, we do not
expect the markets to simply reward survivorship with performance since
earnings estimate achievability should matter more prospectively.
2
- --------------------------------------------------------------------------------
[GRAPHIC]
Q. What were the primary drivers Fund performance?
A. The Fund benefitted from superior stock selection in the energy and
materials sectors. Energy was a difficult sector to navigate given weak end
market demand in refining and marketing. The portfolio managers favored the
energy services companies while underweighting the major integrated
companies. Transocean (+89%, which was removed after its rally) and
Halliburton (+68%) were key contributors in the energy services industry. In
materials, Freeport McMoRan Copper & Gold (+229%) was a standout performer,
benefiting from higher copper prices and growth opportunities.
Outperformance in consumer staples was driven by Pepsi Bottling Group's 69%
rally on its takeover bid by PepsiCo. The Fund initiated a new position in
Proctor & Gamble, which we felt was attractively priced; after
underperforming earlier in the year the stock appreciated 16% since its
inclusion. While staples underperformed the market overall, as investors
embraced riskier assets, underweighting Wal-Mart and some other larger-cap
staples helped Fund performance. An underweight in the healthcare sector
helped Fund performance as the sector underperformed in 2009. Lack of
economic sensitivity and concerns regarding proposed healthcare reform both
dampened relative stock performance. As the year progressed, we added to a
number of medical technology and pharmaceutical stocks, which became
attractively valued as they underperformed. For example, we closed our
underweight in Johnson & Johnson at attractive valuation levels, an
initiated positions in Baxter International and Becton Dickinson.
On the other hand, consumer-related technology stocks detracted from Fund
performance. Not owning high-valuation companies like Google and Apple
(which proved too expensive to own) adversely impacted the Fund's relative
performance. In addition, an overweight in the financial sector negatively
impacted Fund performance, despite some outstanding rebound following the
March bottom. The Fund was overweight in property & casualty (P&C) insurance
companies like Ace (-2%) and AON (-15%) which also detracted from Fund
performance. We view these concerns regarding P&C rate competition as
cyclical and continued to own the stocks. The Fund was underweight in the
consumer discretionary sector, the third best-performing sector in the S&P
500 for the year. While Media performed strongly -- and the Fund had large
positions in Time Warner (+42%) and Omnicom (+48%) -- an underweight in
autos, home durables, lodging and retail detracted from returns vs. the
benchmark.
Q. Were there any significant changes to the Fund over the period?
A. The Fund continued to emphasize financially strong companies that the
portfolio managers believe can gain market share in a slow-growth economic
environment. In general, the Fund was defensively positioned as we started
the year, yet we maintained an overweight in financial stocks and energy
throughout. As of December 31, given our investments in custody banks,
investment banks and quality insurers, financials was still our largest
overweighted sector. We took advantage of values within the energy and
materials sectors to increase our weighting in commodity-oriented companies
during the period, with the emphasis on exploration and production companies
like Chesapeake, Devon and Suncor. As the year progressed, the portfolio
managers found several opportunities among higher-quality, brand-name
companies. We went from a significant underweighting in healthcare, to an
overweight as the stocks underperformed. Conversely, our information
technology holdings were reduced given the sector's strong performance in
2009. The portfolio managers continue to construct the Fund on a
stock-by-stock, bottom-up basis, and we are optimistic about the 2010
outlook for relative performance.
3
Core Value Equity Fund
- --------------------------------------------------------------------------------
Understanding Your Fund's Expenses
As a shareholder of the Fund you incur ongoing expenses, which include
portfolio management fees, professional fees, administrative fees and other
Fund expenses. The following example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors during the period. The information in the
following table is based on an investment of $1,000, which is invested at the
beginning of the period and held for the entire six-month period ended December
31, 2009.
Actual Expenses
The first section of the table provides information about actual account values
and actual expenses. You may use the information in this section, together with
the amount you invested, to estimate the expenses that you paid over the
period. To do so, simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number given for your class under the heading "Expenses Paid During Period."
Hypothetical Example for Comparison Purposes
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and
an assumed rate of return of 5% per year before expenses, which is not the
Fund's actual return. You may use this information to compare the ongoing costs
of investing in the Fund and other funds. To do so, compare this 5%
hypothetical example with the 5% hypothetical examples that appear in the
shareholders reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
July 1, 2009 - December 31, 2009
- ----------------------------------------------------------------------------------------------
Account value at the Account value at the Expenses paid
beginning of the period ($) end of the period ($) during the period ($)*
- ----------------------------------------------------------------------------------------------
Actual Fund Return**
- ----------------------------------------------------------------------------------------------
Class 1 1,000.00 1,200.31 6.88
Class 4 1,000.00 1,197.59 9.25
- ----------------------------------------------------------------------------------------------
Hypothetical 5% Return (2.5% for the period)
- ----------------------------------------------------------------------------------------------
Class 1 1,000.00 1,018.78 6.31
Class 4 1,000.00 1,016.65 8.49
- ----------------------------------------------------------------------------------------------
*Expenses are equal to the Fund's annualized expense ratio of 1.24% for Class 1
shares and 1.67% for Class 4 shares (for the period July 1, 2009--December 31,
2009), multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period)
**Actual Fund Returns for the six-month period ended December 31, 2009 were as
follows: 20.03% for Class 1 shares, and 19.76% for Class 4 shares.
4
Core Value Equity Fund
- --------------------------------------------------------------------------------
CHANGE IN VALUE OF A $10,000 INVESTMENT
CLASS 1 SHARES
- --------------------------------------------------------------------------------
[CHART]
Core Value Equity Fund S&P 500 Index
---------------------- -------------
28-Apr-00 10,000.00 10,000.00
1-Dec-00 9,978.58 9,154.99
1-Dec-01 9,105.15 8,064.45
1-Dec-02 7,505.72 6,282.05
1-Dec-03 9,310.98 8,086.77
1-Dec-04 10,202.11 8,966.72
1-Dec-05 10,616.27 9,407.74
1-Dec-06 12,511.37 10,893.45
1-Dec-07 13,774.83 11,492.11
1-Dec-08 9,237.75 7,240.28
1-Dec-09 11,584.40 9,156.38
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 2009
- --------------------------------------------------------------------------------
CLASS 1 SHARES (Inception date: 4/28/00)
- --------------------------------------------------------------------------------
ONE FIVE SINCE ENDING VALUE OF A
YEAR YEAR INCEPTION $10,000 INVESTMENT
--------------------------------------------------------------------------
Core Value Equity Fund 25.40% 2.57% 1.53% $11,584
--------------------------------------------------------------------------
S&P 500 Index 26.46% 0.42% -0.91% $ 9,156
--------------------------------------------------------------------------
Morningstar peer group average* 28.47% 0.39%
--------------------------------------------------------------------------
CLASS 4 SHARES
- --------------------------------------------------------------------------------
[CHART]
Core Value Equity Fund S&P 500 Index
---------------------- -------------
1-May-08 10,000.00 10,000.00
1-Jun-08 9,419.55 9,275.57
1-Sep-08 8,818.74 8,499.21
1-Dec-08 6,923.44 6,634.20
1-Mar-09 6,176.69 5,903.65
1-Jun-09 7,211.48 6,844.05
1-Sep-09 8,235.59 7,912.13
1-Dec-09 8,636.37 8,389.91
- --------------------------------------------------------------------------------
TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 2009
- --------------------------------------------------------------------------------
CLASS 4 SHARES (Inception date: 5/1/08)
- --------------------------------------------------------------------------------
ONE SINCE ENDING VALUE OF A
YEAR INCEPTION $10,000 INVESTMENT
---------------------------------------------------------------------
Core Value Equity Fund 24.74% -8.40% $8,636
---------------------------------------------------------------------
S&P 500 Index 26.46% -9.99% $8,390
---------------------------------------------------------------------
Morningstar peer group average** 28.47%
---------------------------------------------------------------------
INVESTMENT PROFILE [GRAPHIC]
A Mutual Fund designed for investors
who seek long-term growth of capital
and future income by investing at
least 80% of its net assets in equity
common and preferred stocks and other
types of securities under normal
circumstances. The Fund invests
primarily in U.S. companies that the
portfolio manager believes are
undervalued by the market but have
solid growth prospects.
PORTFOLIO COMPOSITION AS OF DECEMBER 31, 2009
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $21,899 (in thousands)
[CHART]
Financials 16.1%
Information Technology 16.0%
Healthcare 13.7%
Energy 11.7%
Consumer Staples 11.6%
Industrials 9.3%
Consumer Discretionary 7.8%
Materials 4.3%
Utilities 3.6%
Telecommunication Services 3.5%
Short-Term 2.4%
Other Investments 0.0%***
TOP TEN LARGEST EQUITY HOLDINGS
AS OF DECEMBER 31, 2009
as a % of Market Value
--------------------------------------------
International Business Machines Corp. 3.66%
--------------------------------------------
The Procter & Gamble Co. 2.78%
--------------------------------------------
Microsoft Corp. 2.60%
--------------------------------------------
Time Warner Inc. 2.45%
--------------------------------------------
Exxon Mobil Corp. 2.29%
--------------------------------------------
PepsiCo, Inc. 2.20%
--------------------------------------------
Hewlett-Packard Co. 2.11%
--------------------------------------------
Omnicom Group Inc. 2.08%
--------------------------------------------
Bank of America Corp. 1.99%
--------------------------------------------
Johnson & Johnson 1.92%
--------------------------------------------
* MORNINGSTAR PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS
FOR THE ONE YEAR, FIVE-YEAR, AND TEN-YEAR PERIODS INDICATED IN THE LARGE
BLEND PEER GROUP CONSISTING OF 464, 337 AND 182 UNDERLYING ANNUITY FUNDS,
RESPECTIVELY.
**MORNINGSTAR PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS
FOR THE ONE YEAR PERIOD INDICATED IN THE LARGE BLEND PEER GROUP CONSISTING OF
474 UNDERLYING ANNUITY FUNDS.
***LESS THAN 0.01%.
SEE NOTES TO PERFORMANCE ON PAGE 1 FOR FURTHER INFORMATION, INCLUDING AN
EXPLANATION OF MORNINGSTAR PEER CATEGORIES.
PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPH AND TABLE DO
NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
5
CORE VALUE EQUITY FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
CORE VALUE EQUITY FUND
NUMBER
OF SHARES VALUE
COMMON STOCK -- 96.0%+
--------------------------------------------------------------------
AEROSPACE & DEFENSE -- 3.4%
Alliant Techsystems, Inc............... 1,360 $ 120,047 /(a)/
Honeywell International Inc............ 5,667 222,146
ITT Corp............................... 4,364 217,065
Rockwell Collins, Inc.................. 3,230 178,813
738,071
BEVERAGES -- 2.8%
Molson Coors Brewing Co. (Class B)..... 3,005 135,706
PepsiCo, Inc........................... 7,934 482,387
618,093
BIOTECHNOLOGY -- 1.6%
Amgen Inc.............................. 6,234 352,657 /(a)/
CAPITAL MARKETS -- 5.0%
Ameriprise Financial, Inc.............. 6,347 246,391
Morgan Stanley......................... 4,987 147,615
State Street Corp...................... 2,834 123,392 /(c)/
The Bank of New York Mellon Corp....... 11,108 310,691
The Charles Schwab Corp................ 4,080 76,786
The Goldman Sachs Group, Inc........... 1,133 191,296
1,096,171
CHEMICALS -- 1.1%
Air Products & Chemicals, Inc.......... 283 22,940
Potash Corp of Saskatchewan Inc........ 1,927 209,080
232,020
COMMERCIAL BANKS -- 0.9%
Regions Financial Corp................. 6,264 33,137
US Bancorp............................. 5,101 114,824
Wells Fargo & Co....................... 1,984 53,548
201,509
COMMUNICATIONS EQUIPMENT -- 0.9%
Cisco Systems, Inc..................... 7,481 179,095 /(a)/
Motorola, Inc.......................... 2,550 19,788
198,883
COMPUTERS & PERIPHERALS -- 5.8%
Hewlett-Packard Co..................... 8,954 461,221
International Business
Machines Corp......................... 6,121 801,239
1,262,460
DIVERSIFIED FINANCIAL SERVICES -- 3.9%
Bank of America Corp................... 28,903 435,279
JPMorgan Chase & Co.................... 10,031 417,992
853,271
NUMBER
OF SHARES VALUE
DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.7%
AT&T Inc............................ 14,168 $ 397,129
Verizon Communications Inc.......... 5,667 187,748
584,877
ELECTRIC UTILITIES -- 2.3%
Edison International................ 7,934 275,945
Entergy Corp........................ 1,700 139,128
Northeast Utilities................. 3,854 99,395
514,468
ELECTRICAL EQUIPMENT -- 1.2%
ABB Ltd. ADR........................ 13,601 259,779 /(a)/
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 0.9%
Corning Inc......................... 10,371 200,264
ENERGY EQUIPMENT & SERVICES -- 2.6%
Halliburton Co...................... 8,671 260,910
National Oilwell Varco, Inc......... 3,117 137,428 /(a)/
Schlumberger Ltd.................... 2,664 173,400
571,738
FOOD & STAPLES RETAILING -- 0.3%
CVS Caremark Corp................... 2,267 73,020
FOOD PRODUCTS -- 2.8%
Archer-Daniels-Midland Co........... 2,267 70,980
Kraft Foods Inc. (Class A).......... 5,554 150,958
McCormick & Company Inc............. 7,311 264,146
Nestle S.A. ADR..................... 2,834 137,024
623,108
HEALTHCARE EQUIPMENT & SUPPLIES -- 3.7%
Baxter International Inc............ 3,967 232,784
Becton Dickinson & Co............... 2,720 214,499
Boston Scientific Corp.............. 12,468 112,212 /(a)/
Covidien PLC........................ 5,203 249,172
808,667
HEALTHCARE PROVIDERS & SERVICES -- 1.6%
Cardinal Health, Inc................ 8,047 259,435
McKesson Corp....................... 1,360 85,000
344,435
HOUSEHOLD PRODUCTS -- 3.9%
Clorox Co........................... 1,303 79,483
Kimberly-Clark Corp................. 2,494 158,893
The Procter & Gamble Co............. 10,031 608,180
846,556
INDUSTRIAL CONGLOMERATES -- 0.4%
Siemens AG ADR...................... 903 82,805
See Notes to Schedule of Investments on page 9 and Notes to Financial
Statements on page 14.
6
CORE VALUE EQUITY FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
NUMBER
OF SHARES VALUE
INSURANCE -- 5.8%
ACE Ltd................................ 6,404 $ 322,762
AON Corp............................... 3,740 143,392
MetLife, Inc........................... 7,367 260,423
PartnerRe Ltd.......................... 2,022 150,962
Principal Financial Group, Inc......... 6,234 149,865
Prudential Financial, Inc.............. 4,760 236,858
1,264,262
INTERNET SOFTWARE & SERVICES -- 0.2%
AOL Inc................................ 1,714 39,902 /(a)/
IT SERVICES -- 1.7%
Accenture PLC.......................... 841 34,902
The Western Union Co................... 17,738 334,361
369,263
LIFE SCIENCES TOOLS & SERVICES -- 1.0%
Life Technologies Corp................. 1,927 100,647 /(a)/
Thermo Fisher Scientific, Inc.......... 2,437 116,220 /(a)/
216,867
MACHINERY -- 2.1%
Deere & Co............................. 4,647 251,356
Eaton Corp............................. 3,117 198,304
449,660
MEDIA -- 5.6%
Comcast Corp. (Class A)................ 2,550 40,826
Omnicom Group Inc...................... 11,618 454,845
The Walt Disney Co..................... 6,234 201,046
Time Warner Inc........................ 18,418 536,701
1,233,418
METALS & MINING -- 2.6%
Allegheny Technologies Inc............. 3,740 167,440
Barrick Gold Corp...................... 3,400 133,892
Freeport-McMoRan Copper &
Gold Inc.............................. 3,230 259,337 /(a)/
560,669
MULTILINE RETAIL -- 0.3%
Target Corp............................ 1,247 60,317
MULTI-UTILITIES -- 1.3%
Dominion Resources, Inc................ 7,084 275,709
OIL, GAS & CONSUMABLE FUELS -- 9.1%
Apache Corp............................ 2,097 216,347
Chesapeake Energy Corp................. 1,587 41,072
Chevron Corp........................... 5,384 414,514
Devon Energy Corp...................... 4,364 320,754
Exxon Mobil Corp....................... 7,367 502,356 /(d)/
Marathon Oil Corp...................... 10,201 318,475
Occidental Petroleum Corp.............. 2,267 184,420
1,997,938
NUMBER
OF SHARES VALUE
PAPER & FOREST PRODUCTS -- 0.7%
Weyerhaeuser Co.................... 3,400 $ 146,676
PERSONAL PRODUCTS -- 0.2%
Avon Products, Inc................. 1,160 36,540
PHARMACEUTICALS -- 5.8%
Abbott Laboratories................ 1,700 91,783
Bristol-Myers Squibb Co............ 14,565 367,766
Johnson & Johnson.................. 6,517 419,760
Merck & Company Inc................ 1,247 45,565
Pfizer Inc......................... 18,985 345,337
1,270,211
ROAD & RAIL -- 1.1%
Union Pacific Corp................. 3,627 231,765
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 3.2%
Intel Corp......................... 14,168 289,027
Kla-Tencor Corp.................... 737 26,650
Microchip Technology Inc........... 3,117 90,580
Nvidia Corp........................ 2,267 42,347 /(a)/
Taiwan Semiconductor Manufacturing
Company Ltd. ADR.................. 12,468 142,634
Texas Instruments Inc.............. 4,420 115,185
706,423
SOFTWARE -- 3.5%
Microsoft Corp..................... 18,702 570,224 /(d)/
Oracle Corp........................ 7,934 194,700
764,924
SPECIALTY RETAIL -- 1.5%
Bed Bath & Beyond, Inc............. 4,080 157,610 /(a)/
Lowe's Companies, Inc.............. 7,651 178,957
336,567
TEXTILES APPAREL & LUXURY GOODS -- 0.1%
NIKE, Inc. (Class B)............... 464 30,656
TOBACCO -- 1.6%
Altria Group, Inc.................. 2,834 55,631
Philip Morris International Inc.... 5,951 286,779
342,410
WIRELESS TELECOMMUNICATION SERVICES -- 0.8%
American Tower Corp. (Class A)..... 4,194 181,223 /(a)/
TOTAL COMMON STOCK
(COST $18,819,132)................ 20,978,252
See Notes to Schedule of Investments on page 9 and Notes to Financial
Statements on page 14.
7
CORE VALUE EQUITY FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
NUMBER
OF SHARES VALUE
-------------------------------------------------------------------
PREFERRED STOCK -- 0.2%
-------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES
Bank of America Corp............... 2,257 $ 33,675 /(a,e)/
TOTAL PREFERRED STOCK
(COST $33,855).................... 33,675
-------------------------------------------------------------------
EXCHANGE TRADED FUNDS -- 1.6%
-------------------------------------------------------------------
Financial Select Sector SPDR Fund.. 4,878 70,194 /(g)/
Industrial Select Sector SPDR Fund. 10,045 279,151 /(d,g)/
TOTAL EXCHANGE TRADED FUNDS
(COST $452,653)................... 349,345
-------------------------------------------------------------------
OTHER INVESTMENTS -- 0.0%*
-------------------------------------------------------------------
GEI Investment Fund
(COST $11,850).................... 9,006 /(f)/
TOTAL INVESTMENTS IN SECURITIES
(COST $19,317,490)................ 21,370,278
-------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 2.4%
-------------------------------------------------------------------
GE Money Market Fund Institutional
Class 0.01%
(COST $528,974)................... 528,974 /(b,h)/
TOTAL INVESTMENTS
(COST $19,846,464)................ 21,899,252
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET -- (0.2)%............................... (43,869)
-----------
NET ASSETS -- 100.0%............... $21,855,383
===========
-------------------------------------------------------------------
OTHER INFORMATION
-------------------------------------------------------------------
The GEI Core Value Equity Fund had the following long futures contracts open at
December 31, 2009:
NUMBER CURRENT
EXPIRATION OF NOTIONAL UNREALIZED
DESCRIPTION DATE CONTRACTS VALUE DEPRECIATION
----------------------------------------------------------
S&P 500 EMini
Index Futures March 2010 6 $333,210 $(1,659)
See Notes to Schedule of Investments on page 9 and Notes to Financial
Statements on page 14.
8
Notes to Schedules of Investments December 31, 2009
- ---------------------------------------------------------------------
The views expressed in this document reflect our judgment as of the publication
date and are subject to change at any time without notice. The securities cited
may not represent current or future holdings and should not be considered as a
recommendation to purchase or sell a particular security. See the prospectus
for complete descriptions of investment objectives, policies, risks and
permissible investments.
(a)Non-income producing security.
(b)Coupon amount represents effective yield.
(c)State Street Corp. is the parent company of State Street Bank & Trust Co.,
the Fund's custodian and accounting agent.
(d)At December 31, 2009, all or a portion of this security was pledged to cover
collateral requirements for futures, options, forward foreign currency
contracts and/or TBA's.
(e)Variable or floating rate security. The stated rate represents the rate at
December 31, 2009 .
(f)GE Asset Management Incorporated (GEAM) is the investment advisor of the
Fund and also serves as investment advisor of the GEI Investment Fund.
(g)Sponsored by SSgA Funds Management, Inc., an affiliate of State Street Bank
& Trust Co., the Fund's custodian and accounting agent.
(h)GEAM, the investment adviser of the Fund, also serves as investment adviser
of the GE Funds-GE Money Market Fund
* Less than 0.1%.
+ Percentages are based on net assets as of December 31, 2009.
Abbreviations:
ADR American Depository Receipt
SPDR Standard & Poors Depository Receipts
TBA To be Announced
9
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
CORE VALUE EQUITY FUND
-------------------------------------------------------
CLASS 1
-------- --------- -------- -------- --------
12/31/09 12/31/08 12/31/07 12/31/06 12/31/05
-------- --------- -------- -------- -------- -
INCEPTION DATE -- -- -- -- 4/28/00
Net asset value, beginning of period....... $ 6.48 $ 10.16 $ 10.70 $ 10.01 $ 9.77
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income.................... 0.08 0.11 0.12 0.17 0.11
Net realized and unrealized
gains/(losses) on investments........... 1.57 (3.46) 0.97 1.62 0.29
- -------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM
INVESTMENT OPERATIONS..................... 1.65 (3.35) 1.09 1.79 0.40
- -------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.................... 0.09 0.12 0.12 0.17 0.12
Net realized gains....................... 0.00 0.21 1.51 0.93 0.04
- -------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS........................ 0.09 0.33 1.63 1.10 0.16
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period............. $ 8.04 $ 6.48 $ 10.16 $ 10.70 $ 10.01
- -------------------------------------------------------------------------------------------------------
TOTAL RETURN /(A)/......................... 25.40% (32.94)% 10.10% 17.85% 4.06%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands). $21,847 $ 20,361 $37,765 $39,683 $ 37,115
Ratios to average net assets:
Net investment income (loss)........... 1.16% 1.18% 0.96% 1.55% 1.13%
Net expenses........................... 1.24%/(b)/ 0.95%/(b)/ 0.81% 0.81% 0.80%
Portfolio turnover rate.................. 61% 68% 45% 42% 36%
---------------------------
CLASS 4
---------------------------
12/31/09 12/31/08
-------- --------
INCEPTION DATE -- 5/1/08
Net asset value, beginning of period....... $ 6.49 $9.82
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income.................... 0.01 0.05**
Net realized and unrealized
gains/(losses) on investments........... 1.60 (3.08)
- -----------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM
INVESTMENT OPERATIONS..................... 1.61 (3.03)
- -----------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.................... 0.06 0.09
Net realized gains....................... 0.00 0.21
- -----------------------------------------------------------------------
TOTAL DISTRIBUTIONS........................ 0.06 0.30
- -----------------------------------------------------------------------
Net asset value, end of period............. $ 8.04 $6.49
- -----------------------------------------------------------------------
TOTAL RETURN /(A)/......................... 24.74% (30.77)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands). $ 9 $7
Ratios to average net assets:
Net investment income (loss)........... 0.72% 0.95%*
Net expenses........................... 1.69%/(b)/ 1.40%/(b)/*
Portfolio turnover rate.................. 61% 68%
NOTES TO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(a)Total returns are historical and assume changes in share price, reinvestment
of dividends and capital gains distributions, and do not include the effect
of insurance contract charges.
(b)Reflects GEAM's waiver of a portion of the Fund's management fee in an
amount equal to the management fee earned by GEAM with respect to the Fund's
investment in the GE Funds - GE Money Market Fund. Excluding waiver, the
expense ratios would be unchanged.
* Annualized for periods less than one year.
**Per share values have been calculated using the average share method.
See Notes to Financial Statements.
10
Statement of Assets CORE VALUE
and Liabilities DECEMBER 31, 2009 EQUITY
FUND
- -------------------------------------------------------------------------------
ASSETS
Investments in securities, at market (cost $19,305,640)......... $21,361,272
Investments in affiliated securities, at market (cost $11,850).. 9,006
Short-term affiliated investments (at amortized cost)........... 528,974
Income receivables.............................................. 37,638
Receivable for fund shares sold................................. 1,449
Other assets.................................................... 6,020
- -------------------------------------------------------------------------------
TOTAL ASSETS.................................................. 21,944,359
- -------------------------------------------------------------------------------
LIABILITIES
Payable for fund shares redeemed................................ 8
Payable to GEAM................................................. 11,988
Accrued other expenses.......................................... 73,560
Variation margin payable........................................ 3,420
- -------------------------------------------------------------------------------
TOTAL LIABILITIES............................................. 88,976
- -------------------------------------------------------------------------------
NET ASSETS........................................................ $21,855,383
- -------------------------------------------------------------------------------
NET ASSETS CONSIST OF :
Capital paid in................................................. 24,092,754
Undistributed (distribution in excess of) net investment income. --
Accumulated net realized gain (loss)............................ (4,288,500)
Net unrealized appreciation/ (depreciation) on:
Investments................................................... 2,052,788
Futures....................................................... (1,659)
- -------------------------------------------------------------------------------
NET ASSETS........................................................ $21,855,383
- -------------------------------------------------------------------------------
CLASS 1:
NET ASSETS........................................................ 21,846,743
Shares outstanding ($0.01 par value; unlimited shares authorized). 2,718,158
Net asset value per share......................................... $8.04
CLASS 4:
NET ASSETS........................................................ 8,640
Shares outstanding ($0.01 par value; unlimited shares authorized). 1,073
Net asset value per share......................................... $8.04
See Notes to Financial Statements.
11
Statement of Operations CORE VALUE
FOR THE YEAR ENDED DECEMBER 31, 2009 EQUITY
FUND
- -------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend............................................................. $456,330
Interest............................................................. 18,234
Interest from affiliated investments................................. 1,611
Less: Foreign taxes withheld......................................... (2,467)
- -------------------------------------------------------------------------------------
TOTAL INCOME........................................................... 473,708
- -------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees..................................... 128,795
Distributors Fees (Notes 4)
Class 4............................................................ 33
Transfer agent....................................................... 17,899
Directors' fees...................................................... 604
Custody and accounting expenses...................................... 58,438
Professional fees.................................................... 20,196
Registration expenses................................................ 3,423
Other expenses....................................................... 16,256
- -------------------------------------------------------------------------------------
TOTAL EXPENSES BEFORE WAIVER AND REIMBURSEMENT......................... 245,644
- -------------------------------------------------------------------------------------
Less: Expenses reimbursed by the adviser............................. (986)
- -------------------------------------------------------------------------------------
Net expenses......................................................... 244,658
- -------------------------------------------------------------------------------------
NET INVESTMENT INCOME.................................................. 229,050
- -------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments........................................................ (2,811,110)
Futures............................................................ 25,431
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/ (DEPRECIATION) ON:
Investments........................................................ 7,048,790
Futures............................................................ (689)
- -------------------------------------------------------------------------------------
Net realized and unrealized gain on investments...................... 4,262,422
- -------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................... $4,491,472
- -------------------------------------------------------------------------------------
See Notes to Financial Statements.
12
Statements of CORE VALUE
Changes in Net Assets EQUITY
FUND
- -----------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2009 2008
- -----------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income................................................ $ 229,050 $ 343,611
Net realized (loss) on investments and futures........................ (2,785,679) (1,070,866)
Net increase (decrease) in unrealized appreciation / (depreciation)
on investments and futures.......................................... 7,048,101 (10,354,106)
- -----------------------------------------------------------------------------------------------------
Net increase (decrease) from operations............................... 4,491,472 (11,081,361)
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM :
Net investment income
Class 1............................................................. (233,609) (348,972)
Class 4............................................................. (60) (94)
Net realized gains
Class 1............................................................. -- (634,685)
Class 4............................................................. -- (216)
- -----------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS..................................................... (233,669) (983,967)
- -----------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions..... 4,257,803 (12,065,328)
- -----------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS :
Proceeds from sale of shares
Class 1............................................................. 615,077 992,710
Class 4............................................................. -- 10,000
Value of distributions reinvested
Class 1............................................................. 233,609 983,648
Class 4............................................................. 60 310
Cost of shares redeemed
Class 1............................................................. (3,618,774) (7,319,163)
Class 4............................................................. -- --
- -----------------------------------------------------------------------------------------------------
Net (decrease) from share transactions................................ (2,770,028) (5,332,495)
- -----------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS................................. 1,487,775 (17,397,823)
NET ASSETS
Beginning of period..................................................... 20,367,608 37,765,431
- -----------------------------------------------------------------------------------------------------
End of period........................................................... $21,855,383 $ 20,367,608
- -----------------------------------------------------------------------------------------------------
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF)
NET INVESTMENT INCOME, END OF PERIOD.................................... $ -- $ --
- -----------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES
CLASS 1
Shares sold............................................................... 91,344 115,279
Issued for distributions reinvested....................................... 28,806 153,935
Shares redeemed........................................................... (545,161) (843,882)
- -----------------------------------------------------------------------------------------------------
Net (decrease) in fund shares............................................. (425,011) (574,668)
- -----------------------------------------------------------------------------------------------------
CLASS 4
Shares sold............................................................... -- 1,018
Issued for distributions reinvested....................................... 7 48
Shares redeemed........................................................... -- --
- -----------------------------------------------------------------------------------------------------
Net increase in fund shares............................................... 7 1,066
- -----------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
13
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
1. ORGANIZATION OF THE COMPANY
GE Investments Funds, Inc. (the "Company") was incorporated under the laws of
the Commonwealth of Virginia on May 14, 1984 and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Company is composed of fourteen investment
portfolios (collectively the "Funds"), although only the following eleven are
currently being offered: U.S. Equity Fund, S&P 500 Index Fund, Premier Growth
Equity Fund, Core Value Equity Fund (the "Fund"), Mid-Cap Equity Fund,
Small-Cap Equity Fund, International Equity Fund, Total Return Fund, Income
Fund, Money Market Fund and Real Estate Securities Fund.
Shares of the Funds of the Company are offered only to insurance company
separate accounts that fund certain variable life insurance contracts and
variable annuity contracts. These insurance companies may include insurance
companies affiliated with GE Asset Management Incorporated ("GEAM"), the
investment adviser and administrator of each of the Funds.
The Company offers two share classes (Class 1 and Class 4) of the Fund as
investment options for variable life insurance and variable annuity contracts.
Class 4 shares were first offered on May 1, 2008, and Fund shares outstanding
prior to May 1, 2008 were designated as Class 1 shares. Each share class has
different fees and expenses, and as a result, each share class will have
different share price and performance. Not all variable contracts offer both
share classes of the Fund.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results may differ from
those estimates.
ACCOUNTING CHANGES
The Financial Accounting Standards Board (FASB) issued FASB Accounting
Standards Codification (ASC) effective for financial statements issued for
interim and annual periods ending after September 15, 2009. The ASC is an
aggregation of previously issued authoritative U.S. generally accepted
accounting principles (GAAP) in one comprehensive set of guidance organized by
subject area. In accordance with the ASC, references to previously issued
accounting standards have been replaced by ASC references. Subsequent revisions
to GAAP will be incorporated into the ASC through Accounting Standards Updates
(ASU).
SUBSEQUENT EVENTS
Subsequent events after the balance sheet date through the date that the
financial statements were issued, have been evaluated in the preparation of the
Financial Statement.
The following summarizes the significant accounting policies of the Fund:
SECURITY VALUATION AND TRANSACTIONS
The Fund's portfolio securities are valued generally on the basis of market
quotations. Equity securities generally are valued at the last reported sales
price on the primary market in which they are traded. Portfolio securities
listed on NASDAQ are valued using the NASDAQ Official Closing Price, which may
not necessarily represent the last sale price. If no sales occurred on the
exchange or NASDAQ that day, the portfolio security generally is valued using
the last reported bid price.
Debt securities (other than short-term securities described below) generally
are valued at an evaluated bid as reported by an independent pricing service.
Values obtained from pricing services are based on recent trading activity and
other relevant information which may include market interest rate curves,
referenced credit spreads and estimated prepayment rates where applicable. In
the absence of a reliable price from such a pricing service, debt securities
may be valued based on dealer supplied valuations or quotations. The Fund's
written or purchased options are valued at the last sales price, or if no sales
occurred that day, at the last reported bid price. Short-term investments of
sufficient credit quality with remaining maturities of sixty days or less at
the time of purchase are valued on the basis of amortized cost, which
approximates market value.
All assets and liabilities of the Fund that are initially expressed in foreign
currency values will be converted into U.S. dollars at the WM/Reuters exchange
rate computed at 11:00 a.m., Eastern time.
14
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
If prices are not readily available for a portfolio security, or if it is
believed that a price for a portfolio security does not represent its fair
value, the security may be valued using procedures approved by the Fund's Board
of Directors that are designed to establish its "fair" value.
Foreign securities may be valued with the assistance of an independent fair
value pricing service in circumstances
where it is believed that they have been or would be materially affected by
events occurring after the close of the portfolio security's primary market and
before the close of regular trading on the NYSE. This independent fair value
pricing service uses a computerized system to appraise affected securities and
portfolios taking into consideration various factors and the fair value of such
securities may be something other than the last available quotation or other
market price.
GEAM may also separately monitor portfolio securities and, consistent with the
Fund's fair value procedures, apply a different value to a portfolio security
than would be applied had it been priced using market quotations or by an
independent fair value pricing service.
Determining the fair value of securities involves the application of both
subjective and objective considerations. Security values may differ depending
on the methodology used to determine their values, and may differ from the last
quoted sale or closing price. No assurance can be given that use of these fair
value procedures will always better represent the price at which the Fund could
sell the affected portfolio security.
Security transactions are accounted for as of the trade date. Realized gains
and losses on investments sold are recorded on the basis of identified cost for
both financial statement and federal tax purposes.
FAIR VALUE MEASUREMENTS
The Fund adopted ASC 820, FAIR VALUATION MEASUREMENTS AND DISCLOSURES effective
January 1, 2008. This guidance establishes a new framework for measuring fair
value and expands related disclosures. Broadly, the framework requires fair
value to be determined based on the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction
between market participants. It also establishes a three-level valuation
hierarchy based upon observable and non-observable inputs.
For financial assets and liabilities, fair value is the price the Fund would
receive to sell an asset or pay to transfer a liability in an orderly
transaction with a market participant at the measurement date. In the absence
of active markets for the identical assets or liabilities, such measurements
involve developing assumptions based on market observable data and, in the
absence of such data, internal information that is consistent with what market
participants would use in a hypothetical transaction that occurs at the
measurement date.
Observable inputs reflect market data obtained from independent sources, while
unobservable inputs reflect our market assumptions. Preference is given to
observable inputs. These two types of inputs create the following fair value
hierarchy:
Level 1 -- Quoted prices for identical investments in active markets.
Level 2 -- Quoted prices for similar investments in active markets; quoted
prices for identical or similar investments in markets that are not active;
and model-derived valuations whose inputs are observable or whose
significant value drivers are observable.
Level 3 -- Significant inputs to the valuation model are unobservable.
Policies and procedures are maintained to value investments using the best and
most relevant data available. In addition, GEAM performs periodic reviews of
the methodologies used by independent pricing services including price
validation of individual securities.
The following section describes the valuation methodologies the Fund uses to
measure different financial investments at fair value.
When available, the Fund uses quoted market prices to determine the fair value
of investment securities, and they are included in Level 1. Level 1 securities
primarily include publicly-traded equity securities.
When quoted market prices are unobservable, pricing information is obtained
from an independent pricing vendor. The pricing vendor uses various pricing
models for each asset class that are consistent with what other market
participants would use. The inputs and assumptions to the model of the pricing
vendor are derived from market observable sources including: benchmark yields,
reported trades, broker/dealer quotes, issuer spreads, benchmark securities,
bids, offers, and other market-related data. Since
15
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
many fixed income securities do not trade on a daily basis, the methodology of
the pricing vendor uses available information as applicable such as benchmark
curves, benchmarking of like securities, sector groupings, and matrix pricing.
The pricing vendor considers all available market observable inputs in
determining the evaluation for a security. Thus, certain securities may not be
priced using quoted prices, but rather determined from market observable
information. These investments are included in Level 2 and primarily comprise
our portfolio of corporate fixed income, and government, mortgage and
asset-backed securities. In infrequent circumstances, pricing vendors may
provide the Fund with valuations that are based on significant unobservable
inputs, and in those circumstances the investment securities are included in
Level 3.
The Fund uses non-binding broker quotes as the primary basis for valuation when
there is limited, or no, relevant market activity for a specific investment or
for other investments that share similar characteristics. The Fund has not
adjusted the prices obtained. Investment securities priced using non-binding
broker quotes are included in Level 3. As is the case with the primary pricing
vendor, third-party brokers do not provide access to their proprietary
valuation models, inputs and assumptions. Accordingly, GEAM conducts internal
reviews of pricing for all such investment securities periodically to ensure
reasonableness of valuations used in our financial statements. These reviews
are designed to identify prices that appear stale, those that have changed
significantly from prior valuations, and other anomalies that may indicate that
a price may not be accurate. Based on the information available, GEAM believes
that the fair values provided by the brokers are representative of prices that
would be received to sell the assets at the measurement date (exit prices).
Other financial investments are derivative investments that are not reflected
in TOTAL INVESTMENTS, such as futures, forwards, swaps, and written options
contracts, which are valued based o the unrealized appreciation/depreciation of
the instrument.
The Fund uses closing prices for derivatives included in Level 1, which are
traded either on exchanges or liquid over-the counter markets. Derivative
assets and liabilities included in Level 2 primarily represent interest rate
swaps, cross-currency swaps and foreign currency and commodity forward and
option contracts. Derivative assets and liabilities included in Level 3
primarily represent interest rate products that contain embedded optionality or
prepayment features.
In January 2010, FASB issued ASU 2010-06, IMPROVING DISCLOSURES ABOUT FAIR
VALUE MEASUREMENTS. ASU 2010-06 will require reporting entities to make new
disclosures about the amounts and reasons for significant transfers in and out
of Level 1 and Level 2 fair value measurements and inputs and valuation
techniques used to measure fair value for both recurring and nonrecurring fair
value measurements that fall in either Level 2 and Level 3, and information on
purchases, sales, issuances, and settlements in the roll forward of activity in
Level 3 fair value measures. The new disclosures are effective for interim and
annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements. Those disclosures are
effect for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. GEAM does not believe the adoption of
ASU 2010-06 will materially impact the financial statement amounts.
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities. For example, money
market securities are valued using amortized cost, in accordance with the
Investment Company Act of 1940. Generally, amortized cost reflects the current
fair value of a security, but since the value is not obtained from a quoted
price in an active market, such securities are reflected as Level 2. Fair value
determinations are required for securities whose value is affected by a
significant event that will materially affect the value of a domestic or
foreign security and which occurs subsequent to the time of the close of the
principal market on which such domestic or foreign security trades but prior to
the calculation of the Fund's NAV.
The following tables present the Fund's investments measured at fair value on a
recurring basis at December 31, 2009:
Level 1 Level 2 Level 3 Total
-----------------------------------------------------------------------
Investments in Securities+ $21,890,246 $9,006 $-- $21,899,252
Other Financial Instruments+ (1,659) -- -- (1,659)
+ See Statement of Investments for Industry Classification.
16
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
REPURCHASE AGREEMENTS The Fund may engage into repurchase agreement
transactions with respect to instruments that are consistent with the Fund's
investment objectives or policies. The Fund's custodian or a third party
custodian takes possession of the collateral pledged for investments in
repurchase agreements on behalf of the Fund. The Fund values the underlying
collateral daily on a mark-to-market basis to determine that the value,
including accrued interest, is at least equal to 102% of the repurchase price.
In the event the seller defaults and the value of the security declines, or if
the seller enters an insolvency proceeding, realization of the collateral by
the Fund may be delayed or limited.
SECURITY LENDING The Fund may loan securities to brokers, dealers, and
financial institutions determined by GEAM to be creditworthy, subject to
certain limitations. The Fund continues to receive the interest and dividends
on the loaned securities during the term of the loan. The loans of securities
are secured by collateral in the form of cash or other liquid assets, which are
segregated and maintained with the custodian in an amount at least equal to
102% of the current market value of the loaned securities. During the term of
the loan, the Fund will record any gain or loss in the market value of its
loaned securities and of securities in which cash collateral is invested. The
Fund will also earn interest, net of any rebate, from securities in which cash
collateral is invested. In the event the counterparty (borrower) does not meet
its contracted obligation to return the securities, the Fund may be exposed to
the risk of loss of reacquiring the loaned securities at prevailing market
prices using the proceeds of the sale of the collateral.
FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the prevailing rates of exchange
on a daily basis (on days the New York Stock Exchange is open). Purchases and
sales of securities, income receipts and expense payments denominated in
foreign currencies are translated into U.S. dollars at the prevailing exchange
rate on the respective dates of such transactions.
The Fund does not isolate the portion of the results of operations resulting
from changes in foreign exchange rates of foreign denominated securities from
the fluctuations arising from changes in the market prices of those securities
during the period. Such fluctuations are included in the net realized or
unrealized gain or loss from investments. Net realized gains or losses on
foreign currency transactions represent net gains or losses on sales and
maturities of foreign currency contracts, disposition of foreign currencies,
the difference between the amount of net investment income and withholding
taxes accrued and the U.S. dollar amount actually received or paid, and gains
or losses between the trade and settlement date on purchases and sales of
securities. Net unrealized foreign exchange gains and losses arising from
changes in the value of other assets and liabilities as a result of changes in
foreign exchange rates are included as increases or decreases in unrealized
appreciation/depreciation on foreign currency related transactions.
FUTURES CONTRACTS The Fund may invest in interest rate, financial or stock or
bond index futures contracts subject to certain limitations. The Fund may
invest in futures contracts to manage its exposure to the stock and bond
markets and fluctuations in currency values. Buying futures tends to increase
the Fund's exposure to the underlying instrument while selling futures tends to
decrease the Fund's exposure to the underlying instrument, or hedge other Fund
investments. The Fund will not enter into a transaction involving futures for
speculative purposes. The Fund's risks in using these contracts include changes
in the value of the underlying instruments, non-performance of the
counterparties under the contracts' terms and changes in the liquidity of the
secondary market for the contracts. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange on
which they principally trade.
Upon entering into a futures contract, the Fund is required to pledge to the
broker an amount of cash and/or other assets equal to a certain percentage of
the contract amount, known as initial margin deposit. Subsequent payments,
known as variation margin, are made or received by the Fund each day, depending
on the daily fluctuation in the fair value of the underlying security. The Fund
records an unrealized gain or loss equal to the daily variation margin. Should
market conditions move unexpectedly, the Fund may not achieve the anticipated
benefits of the futures contracts and may incur a loss. The Fund recognizes a
realized gain or loss on the expiration or closing of a futures contract.
OPTIONS The Fund may purchase and write options, subject to certain
limitations. The Fund may invest in options contracts to manage its exposure to
the stock and bond markets and fluctuations in foreign currency values.
17
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
Writing puts and buying calls tend to increase the Fund's exposure to the
underlying instrument while buying puts and writing calls tend to decrease the
Fund's exposure to the underlying instrument, or hedge other Fund investments.
The Fund will not enter into a transaction involving options for speculative
purposes. The Fund's risks in using these contracts include changes in the
value of the underlying instruments, non-performance of the counterparties
under the contracts' terms and changes in the liquidity of the secondary market
for the contracts. Options are valued at the last sale price, or if no sales
occurred on that day, at the last quoted bid price.
When the Fund writes an option, the amount of the premium received is recorded
as a liability and is subsequently adjusted to the current fair value of the
option written. Premiums received from writing options that expire unexercised
are treated by the Fund on the expiration date as realized gains from
investments. The difference between the premium and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium is less than the amount paid
for the closing purchase, as a realized loss. When an option is exercised, the
proceeds from the sale of the underlying security or the cost basis of the
securities purchased is adjusted by the original premium received or paid.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for
federal income tax purposes.
The Fund is subject to ASC 740, INCOME TAXES. ASC 740 provides guidance for
financial accounting and reporting for the effects of income taxes that result
from an entity's activities during the year. ASC 740 also provides guidance
regarding how certain uncertain tax positions should be recognized, measured,
presented and disclosed in the financial statements. ASC 740 requires
evaluation of tax positions taken or expected to be taken in the course of
preparing the Funds' tax returns to determine whether the tax positions are
"more likely than not" of being sustained by the applicable tax authority.
There are no adjustments to the Funds' net assets required under ASC 740. The
Funds' 2006, 2007, 2008 and 2009 fiscal years tax returns are still open to
examination by the Federal and applicable state tax authorities."
At December 31, 2009, information on the tax cost of investments is as follows:
Net Tax
Appreciation/
(Depreciation) Undistributed
Cost of Net Tax on Derivatives, Undistributed Long-Term
Investments Gross Tax Gross Tax Appreciation/ Currency Income/ Gains Post October
for Tax Unrealized Unrealized (Depreciation) and other (Accumulated (Accumulated Losses (see
Purposes Appreciation Depreciation on Investments Net Assets Ordinary Loss) Capital Loss) Detail Below)
- -----------------------------------------------------------------------------------------------------------------------
$20,514,981 $2,656,740 $(1,272,469) $1,384,271 $-- $-- $(3,590,467) $(31,175)
As of December 31, 2009, the Fund has capital loss carryovers as indicated
below. Capital loss carryovers are available to offset future realized capital
gains to the extent provided in the Internal Revenue Code and regulations
thereunder. To the extent that these carryover losses are used to offset future
capital gains, it is probable that the gains so offset will not be distributed
to shareholders because they would be taxable as ordinary income.
18
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
Amount Expires
---------------------------------------------------
$3,590,467 12/31/2017
Any net capital and currency losses incurred after October 31, within the
Fund's tax year, are deemed to arise on the first day of the Fund's next tax
year if the Fund so elects to defer such losses.
The Fund elected to defer losses incurred after October 31, 2009 as follows:
Capital Currency
---------------------------------------------------
$31,175 $--
The tax composition of distributions paid during the years ended December 31,
2009 and December 31, 2008 were as follows:
Long-Term
Ordinary Capital
Income Gains Total
-----------------------------------
2009 $ 233,669 $ -- $233,669
2008 350,157 633,810 983,967
DISTRIBUTIONS TO SHAREHOLDERS The Fund declares and pays dividends from net
investment income annually. The Fund declares and pays net realized capital
gains in excess of capital loss carryforwards distributions annually. The
character of income and gains to be distributed is determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences include (but are not limited to) futures and
losses deferred due to wash sale transactions. Reclassifications due to
permanent book/tax differences are made to the Fund's capital accounts to
reflect income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. These reclassifications have no
impact on net investment income, realized gains or losses, or the net asset
value of the Fund. The calculation of net investment income per share in the
Financial Highlights table excludes these adjustments.
The reclassifications for the year ended December 31, 2009 were as follows:
Undistributed
Net Investment Accumulated
Income Net Realized Loss Paid in Capital
-----------------------------------------------------------------------------
$4,619 $(21,456) $16,837
INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on
the ex-dividend date, net of applicable withholding taxes, except for certain
foreign corporate actions, which are recorded as soon after ex-dividend date as
such information becomes available. Interest income is recorded on the accrual
basis. All discounts and premiums on bonds are accreted and amortized,
respectively, to call or maturity date, whichever is shorter, using the
effective yield method.
EXPENSES Fund specific expenses are allocated to the Fund that incurs such
expense and pro rata across share classes. Expenses, other than those incurred
by a specific Fund, are allocated pro rata among Funds and share classes. Such
expenses may include custodial fees, legal and accounting fees, printing costs
and registration fees. All expenses of the Fund are paid by GEAM and reimbursed
by the Fund. Certain class specific expenses (such as transfer agency fees or
distribution fees) are allocated to the class that incurs such expense.
DERIVATIVE INSTRUMENTS
The Fund is subject to equity price risk and foreign currency exchange rate
risk in the normal course of pursuing their investment objectives. The Fund
entered into derivative transactions for the purpose of hedging against the
effects of changes in the value of portfolio securities due to anticipated
changes in market conditions and to gain market exposure for residual and
accumulating cash positions. A futures contract represents a commitment for the
future purchase or sale of an asset at a specified price on a specified date.
Upon entering into such contracts, the Fund is required to deposit with the
broker, either in cash or securities, an initial margin in an amount equal to a
certain percentage of the contract amount. Subsequent payments (variation
margin) are made or received by the Fund each day, depending on the daily
fluctuations in the value of the contract, and are recorded for financial
statement purposes as unrealized gains or losses by the Fund. Upon entering
into such contracts, the Fund bears the risk of interest or exchange rates or
securities prices moving unexpectedly, in which case, the Fund may not achieve
the anticipated benefits of the futures contracts and may realize a loss. With
futures contracts, there is minimal counterparty credit risk to the Fund since
futures contracts are exchange traded and the exchange's clearinghouse, as
counterparty to all traded futures, guarantees the futures against default.
19
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
Shown below are the derivative contracts entered into by the Fund, summarized
by primary risk exposure.
Asset Derivatives December 31, 2009 Liability Derivatives December 31, 2009
---------------------------------------------- ---------------------------------------
Derivatives not
accounted for as Location in Notional Location in Notional
hedging instruments the Statements Value/No. of the Statements Value/No. of
under FASB of Assets Contracts Fair of Assets and Contracts Fair
ASC 815 and Liabilities Long/(Short) Value* Liabilities Long/(Short) Value
- ------------------------------------------------------------------------------------------------------------
Equity Contracts Payables, Net Assets -- 333,210/6 (1,659) -- -- --
Unrealized Appreciation/
(Depreciation) on futures
- ------------------------------------------------------------------------------------------------------------
*INCLUDES CUMULATIVE APPRECIATION/DEPRECIATION OF FUTURES CONTRACTS AS REPORTED
IN THE SCHEDULE OF INVESTMENTS AND EQUITY SECTION OF THE STATEMENT OF ASSETS
AND LIABILITIES. ONLY THE CURRENT DAY'S VARIATION MARGIN IS REPORTED WITHIN
THE RECEIVABLES AND/OR PAYABLES STATEMENT OF ASSETS AND LIABILITIES.
Shown below are the effects of derivative instruments on the Fund's Statements
of Operations, summarized by primary risk exposure.
Total Number of Change in Unrealized
Derivatives not accounted Location in the Futures/Options Realized Gain or Appreciation/(Depreciation)
for as hedging instruments Statements of Contracts (Loss) on Derivatives on Derivatives
under FASB ASC 815 Operations Purchased/(Sold) Recognized in Income Recognized in Income
- -------------------------------------------------------------------------------------------------------------------------
Equity Contracts Net realized gain/(loss) 30/(26) 25,431 (689)
on futures, Increase/
(decrease) in unrealized
appreciation/
(depreciation) on futures
- -------------------------------------------------------------------------------------------------------------------------
3. LINE OF CREDIT
The Company shares a revolving credit facility of up to $150 million with a
number of its affiliates. The credit facility is with its custodian bank, State
Street Bank and Trust Company. The revolving credit facility requires the
payment of a commitment fee equal to 0.15% per annum on the daily unused
portion of the credit facility, payable quarterly. The portion borne by the
Funds generally is borne proportionally based upon net assets. In addition, the
Company has a $100 million uncommitted, unsecured line of credit with State
Street. Generally, borrowings under the credit facilities would accrue interest
at the Federal Funds Rate plus 50 basis points and would be borne by the
borrowing Fund. The maximum amount allowed to be borrowed by any one Fund is
the lesser of (i) its prospectus limitation or (ii) 20% of its net assets. The
credit facilities were not utilized by the Fund during the fiscal year ended
December 31, 2009.
4. AMOUNTS PAID TO AFFILIATES
ADVISORY AND ADMINISTRATION FEES GEAM, a registered investment adviser, was
retained by the Company's Board of Directors effective March 16, 2000 to act as
investment adviser and administrator of the Fund. GEAM's compensation for
investment advisory and administrative services is paid monthly based on the
average daily net assets of the Fund at an annualized rate of 0.65%.
GEAM waives a portion of the Fund's management fee in the amount equal to the
management fee earned by GEAM with respect to the Fund's investment in the GE
Funds -- GE Money Market Fund.
DISTRIBUTION AND SERVICE (12B-1) FEE The Company has adopted a Distribution and
Service (12b-1) Plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act
with respect to Class 4 shares of the Fund. Under the Plan, the Fund may
compensate GE Investment Distributors, Inc. ("GEID"), a wholly-owned subsidiary
of GEAM and the Fund's principal distributor, for certain sales services
provided by GEID or other broker dealers and investor services provided by GEID
or other service providers relating to the Fund's Class 4 shares, including
services to owners or prospective owners of variable contracts issued by
insurance companies that offer such share class as an investment option. The
amount of compensation paid under the Plan by the Fund's Class 4 shares may not
exceed 0.45% of the average daily net assets of the Fund attributable to such
share class. The Plan
20
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
continues in effect from year to year for so long as such continuance is
approved annually by the Board of Directors, including by those directors who
are not interested persons of the Company and who have no direct or indirect
financial interest in the operation of the Plan or in any agreement related to
it.
GENPACT performs certain accounting and certain administration services not
provided by GEAM. For the period ending December 31, 2009, $334 was charged to
the Fund.
DIRECTORS' COMPENSATION The Fund pays no compensation to its directors who are
officers or employees of GEAM or its affiliates. Directors who are not such
officers or employees also serve in a similar capacity for other funds advised
by GEAM. Compensation paid to unaffiliated directors are reflected on the
Statement of Operations. These fees are allocated pro rata across all of the
mutual fund platforms and share classes served by the directors, including the
Fund, and are based upon the relative net assets of each fund within such
platforms. (For additional information about directors compensation please
refer to the Statement of Additional Information.)
5. INVESTMENT TRANSACTIONS
PURCHASES AND SALES OF SECURITIES The cost of purchases and the proceeds from
sales of investments, other than short-term securities and options, for the
period ended December 31, 2009 were as follows:
U.S. Government Securities
-----------------------------------------------------
Purchases Sales
-----------------------------------------------------
$-- $--
Other Securities
-----------------------------------------------------
Purchases Sales
-----------------------------------------------------
$11,742,181 $14,352,165
SECURITY LENDING At December 31, 2009 and for the year then ended, the Fund did
not participate in securities lending.
21
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the Core Value Equity Fund, a series
of GE Investments Funds, Inc., as of December 31, 2009, and the related
statement of operations for the year then ended, statements of changes in net
assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years or periods in the five-year period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of December 31, 2009 by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Core Value Equity Fund as of December 31, 2009, the results of its operations,
changes in its net assets and financial highlights for each of the years or
periods described above, in conformity with U.S. generally accepted accounting
principles.
/s/ KPMG LLP
Boston, Massachusetts
February 25, 2010
22
Advisory and Administrative Agreement Renewal (unaudited)
- ---------------------------------------------------------------
The Board of Directors of the GE Investments Funds, Inc. (the "Board"),
including the independent Board members, considered and all those that were
present unanimously approved the continuance of the Fund's Investment Advisory
and Administration Agreement with GE Asset Management Incorporated ("GEAM") at
meetings held on December 4 and December 11, 2009.
In considering whether to approve the Fund's investment advisory agreement, the
Board members considered and discussed a substantial amount of information and
analysis provided, at the Board's request, by GEAM. The Board members also
considered detailed information regarding performance and expenses of other
investment companies, including those with similar investment objectives and
sizes, which was prepared by independent third party providers, Lipper
Analytical Services Inc. ("Lipper") and Morningstar, Inc. ("Morningstar"). The
Board members reviewed the fees charged by GEAM for other mutual funds and
investment products other than mutual funds that employ the same investment
strategy as the Fund. The Board had the opportunity to ask questions and
request additional information in connection with its considerations.
Before approving the Fund's advisory agreement, the Board members reviewed the
information provided with management of GEAM and with independent legal
counsel. The Board members also reviewed a memorandum prepared by independent
legal counsel discussing the legal standards for the consideration of the
proposed continuance. The independent Board members discussed the proposed
continuance in detail during a private session with their independent legal
counsel at which no representatives of GEAM were present. The independent Board
members and their independent legal counsel requested, and received and
considered, additional information from GEAM following these sessions.
In advance of the meetings, and in response to their request, the Board members
received from GEAM written responses to their inquiries, which included
substantial exhibits and other materials related to GEAM's business and the
services it provides to the Fund. The Board members took into account their
multi-year experience as Board members and particularly their consideration of
these types of agreements in recent years. The information was presented in a
manner to facilitate comparison to prior periods and to reflect certain
enhancements. To focus their review, the Board members asked GEAM management,
in its oral presentation, to highlight material differences from the
information presented in recent years.
During the meetings, the Board members had an opportunity to discuss this
information with GEAM managers, including senior executives, representatives
from the legal, compliance and finance departments, and investment personnel.
The Board members posed questions to these representatives and engaged in
substantive discussions with them concerning GEAM's investment process.
In reaching their determination relating to continuance of the Fund's
investment advisory agreement, the Board members considered all factors that
they deemed relevant, including the factors discussed below. In their
deliberations, the Board members did not identify any particular information
that was all-important or controlling, and each Board member may have
attributed different weights to the various factors. In particular, the Board
members focused on the following:
THE NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED.
The Board members reviewed the services provided by GEAM, taking into account
their extensive past experiences with GEAM. They focused on the favorable
attributes of GEAM, including (i) an investment philosophy oriented toward
long-term performance; (ii) effective processes used for selecting investments
and brokers; (iii) effective processes used for providing Fund administration,
including controllership and compliance functions and oversight of the
performance of other companies that provide services to the Fund; (iv) highly
skilled professionals including analysts, research professionals, traders and
portfolio managers with a depth of experience involving the types of Funds they
oversee; (v) access to significant technological resources from which the Fund
may benefit; and (vi) a favorable history and reputation. The Board members
discussed with senior officers of GEAM the personnel changes made, and proposed
to be made, by GEAM. The Board members noted that the Fund represents only a
small portion of the assets managed by GEAM, but benefits from a full array of
services and resources provided by GEAM.
In light of these discussions, the Board, including the independent Board
members, concluded that GEAM's services continue to be satisfactory.
INVESTMENT PERFORMANCE OF THE FUND.
The Board members considered the investment performance of the Fund for various
periods. The Board
23
Advisory and Administrative Agreement Renewal (unaudited)
- ---------------------------------------------------------------
members reviewed detailed comparisons of the performance of the Fund with the
relevant securities indices and peer groupings of mutual funds prepared by
Lipper and Morningstar with respect to various periods. The Board members also
engaged in detailed discussions with GEAM management about its investment
process and performance results. These discussions focused on the Fund's
investment objective, the number and experience of portfolio management and
supporting research personnel, the investment style and approach employed and
the likely market cycles for the investment style.
The Board, including the independent Board members, concluded that the Fund's
performance was acceptable overall taking into consideration the factors
discussed above.
COST OF THE SERVICES PROVIDED AND PROFITS REALIZED FROM THE RELATIONSHIP WITH
THE FUND.
The Board members considered the fees paid to GEAM by the Fund and the cost of
the services provided to the Fund by GEAM. The Board members reviewed the
information they had requested from GEAM concerning its profitability. The
Board members considered the profit margin information for GEAM's investment
company business as a whole, as well as GEAM's profitability data for the Fund.
The Board members reviewed GEAM's assumptions and the methods of cost
allocation used by GEAM in preparing Fund-specific profitability data. The
Board members also discussed with GEAM the basis for its belief that the
methods of allocation used were reasonable for each area of its business.
Information was presented regarding the financial condition of GEAM for various
past periods. The Board members noted and discussed the additional services
provided by GEAM to the Fund compared to other investment products managed by
GEAM, and were provided a study conducted by the Investment Company Institute
that discusses and compares advisory fees and services for mutual funds and
institutional separate accounts. The Board members determined that GEAM should
be entitled to earn a reasonable level of profits for the services it provides
to the Fund. The Board members also recognized that GEAM had made significant
investments in its business and had not fully recovered the sums invested. The
Board also considered that, in the face of overall declining assets and
revenues over the course of the past year, GEAM continues to make a substantial
investment in fulfilling its obligations to the Fund and supporting its
Fund-related activities.
Based on their review, the Board, including the independent Board members,
concluded that they were satisfied that the level of profitability achieved by
GEAM from its relationship with the Fund was not unreasonable or excessive.
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS AND
WHETHER FEE LEVELS WOULD REFLECT SUCH ECONOMIES OF SCALE.
Although the Board noted that the Fund did not experience significant growth in
assets over the past year, the Board members considered the extent to which
economies of scale would be realized as the Fund grows, and whether fee levels
reflect these economies of scale for the benefit of Fund investors.
The Board members considered the substantial infrastructure investments that
GEAM has made with respect to its operations and its commitment to continue
investing resources to enhance services to Fund shareholders. The Board members
recognized the benefits to the Fund of GEAM's past investment in its operations
through the expenditure of sums to support its substantial infrastructure, and
that, with respect to all GEAM managed mutual funds, GEAM has not yet fully
recouped that investment. The Board members also recognized the benefits to the
Fund of being able to leverage a favorable cost structure achieved with respect
to the Fund's other operating expenses as a result of GEAM's large overall base
of assets under management and its vendor management practices.
COMPARISON OF SERVICES TO BE RENDERED AND FEES TO BE PAID.
The Board members discussed the services provided to the Fund by GEAM, and the
fees charged for those services. The Board members reviewed information
concerning the fee and expense ratios for the Fund, and comparative information
with respect to similar products. They discussed that the Fund's figures were
within the applicable peer group range, although operating expenses were at the
higher end of the range. In light of the foregoing, the Board, including the
independent Board members, determined that the advisory fees were reasonable in
relation to the services provided to the Fund.
24
Advisory and Administrative Agreement Renewal (unaudited)
- ---------------------------------------------------------------
FALL-OUT BENEFITS.
The Board members considered other actual and potential financial benefits that
GEAM may derive from its relationship with the Fund, including, to the extent
applicable, soft dollar commission benefits generated through Fund portfolio
transactions. The Board members noted, however, that the Fund benefits from the
vast array of resources available through GEAM, and that the Fund represents
only a small portion of the assets managed by GEAM.
CONCLUSION.
No single factor was determinative to the Board's decision. Based on their
discussion and such other matters as were deemed relevant, the Board, including
the independent Board members, concluded that renewal of the advisory agreement
was in the best interests of the Fund and its shareholders.
25
Additional Information (unaudited)
- ---------------------------------------------------------------
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS:
The business and affairs of the Company are managed under the direction of the
Company's Board of Directors. Information pertaining to the Directors and
officers of the Company is set forth below.
INTERESTED DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
MICHAEL J. COSGROVE
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
POSITION(S) HELD WITH FUND Chairman of the Board and President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS President and Chief Executive
Officer - Mutual Funds and Intermediary Business since March 2007; Executive
Vice President of GEAM from February 1997 to March 2007; Director of GEAM since
1988; Vice President, GE Capital Corporation, an indirect wholly-owned
subsidiary of GE, since December 1999; Executive Vice President - Sales and
Marketing of GEAM, a wholly-owned subsidiary of GE that is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, from
March 1993 to March 2007.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 51
OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE
Funds since 1993, and GE Institutional Funds since its inception; Trustee of
General Electric Savings & Security Trust, General Electric S&S Income Fund,
General Electric S&S Program Mutual Fund ("GE Savings & Security Funds"), Elfun
Funds, General Electric Insurance Plan Trust, General Relief Loan Fund, and
General Electric Pension Trust since 1988; Trustee of Fordham University since
2002; Trustee of GE Volunteers since 1993; Director, GE Asset Management
(Ireland) since February 1999; Director, GE Asset Management Funds Plc., GE
Asset Canada Company, and GE Asset Management Limited since 1998.
- --------------------------------------------------------------------------------
MATTHEW J. SIMPSON
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 48
POSITION(S) HELD WITH FUND Director and Executive Vice President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 2 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President, General
Counsel and Secretary of GEAM since July 2007; Senior Vice President and
General Counsel - Marketing and Client Services (formerly Asset Management
Services), at GEAM and Senior Vice President and General Counsel of GEAMS from
February 1997 to June 2007; Vice President and Associate General Counsel of
GEAM from October 1992 to February 1997; Secretary of Fund from 1997 to June
2007; Vice President of Fund from September 2003 to June 2007; Vice President
of GE Institutional Funds from September 2003 to June 2007; Secretary of GE
Institutional Funds and GE LifeStyle Funds from 1997 to June 2007; Vice
President of Elfun Funds and GE Savings & Security Funds from October 2003 to
June 2007; Assistant Secretary of Elfun Funds and GE Savings & Security Funds
from 1998 to June 2007.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 51
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds, GE Institutional
Funds, Elfun Funds and GE Savings & Security Funds since July 2007.
26
Additional Information (unaudited)
- ---------------------------------------------------------------
- --------------------------------------------------------------------------------
SCOTT H. RHODES
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 49
POSITION(S) HELD WITH FUND Treasurer
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 3 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS GEAM Mutual Funds Operations
Manager since September 2005; Treasurer of GE Institutional Funds, GE LifeStyle
Funds and GE Investments Funds since November 2005 and Elfun Funds and GE
Savings & Security Funds since September 2005; from August 2004 to September
2005 Vice President, U.S. Trust Company, N.A. and Assistant Treasurer of
Excelsior Funds, Inc., Excelsior Funds Trust, and Excelsior Tax Exempt Funds,
Inc.; from January 2004 to August 2004, Vice President BlackRock Financial
Management, Inc.; from December 1996 to November 2003, Controller - Mutual
Funds, American Skandia Investment Services, Inc. and Assistant Treasurer of
American Skandia Trust and American Skandia Advisor Funds, Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
JEANNE M. LAPORTA
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 44
POSITION(S) HELD WITH FUND Vice President and Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 5 years (Vice President); 3 years (Secretary)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Senior Vice President and Deputy
General Counsel at GE Asset Management since October 2007; Vice President and
Associate General Counsel - Marketing and Client Services (formerly Asset
Management Services) at GEAM from May 1997 to October 2007; Vice President and
Assistant Secretary of GE Funds and GE Institutional Funds from September 2003
to July 2007; Vice President and Secretary of GE Funds and GE Institutional
Funds since July 2007; Vice President and Assistant Secretary of Elfun Funds
and GE Savings & Security Funds since October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
27
Additional Information (unaudited)
- ---------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 63
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS General Partner, NGN Capital LLC
since 2006; Managing Director, Vice President of Walden Capital Management
since 1996.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, GE
Institutional Funds since its inception; Trustee of Fordham University from
1989 to 1995 and 2001 to 2007 and Trustee Emeritus since 2007; Trustee of Neuro
Science Research Institute since 1986; Trustee of Gregorian University
Foundation from 1992 to 2007; Director of Artes Medical from 2006 to 2008.
- --------------------------------------------------------------------------------
WILLIAM J. LUCAS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 61
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Treasurer of
Fairfield University since 1983.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds since its inception.
- --------------------------------------------------------------------------------
ROBERT P. QUINN
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 74
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon
Brothers Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds since its inception; Trustee, St. Francis Hospital Corp.
- --------------------------------------------------------------------------------
The Statement of Additional Information for the Fund includes additional
information about the Directors and Officers and is available, without charge,
upon request by calling 1-800-493-3042.
28
Investment Team
- ----------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
GE Asset Management Incorporated
BOARD OF DIRECTORS
Michael J. Cosgrove, CHAIRMAN
John R. Costantino
William J. Lucas
Robert P. Quinn
Matthew J. Simpson
SECRETARY
Jeanne M. LaPorta
ASSISTANT SECRETARIES
Joseph A. Carucci
Joon Won Choe
Kimberley Costello
Michelle Matzelle
TREASURER
Scott H. Rhodes
ASSISTANT TREASURERS
Scott R. Fuchs
Christopher M. Isaacs
DISTRIBUTOR
GE Investment Distributors, Inc.
Member FINRA and SIPC
COUNSEL
Sutherland, Asbill & Brennan, LLP
CUSTODIAN
State Street Bank & Trust Company
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
OFFICERS OF THE INVESTMENT ADVISER
James W. Ireland, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Cheryl H. Beacock, SENIOR VICE PRESIDENT,
HUMAN RESOURCES
Daniel O. Colao, EXECUTIVE VICE PRESIDENT, Chief Financial Officer
Michael J. Cosgrove, PRESIDENT AND CHIEF EXECUTIVE OFFICER - MUTUAL FUNDS &
INTERMEDIARY BUSINESS
Paul M. Colonna, PRESIDENT AND CHIEF INVESTMENT OFFICER - FIXED INCOME
INVESTMENTS
Amiel Goldberg, SENIOR VICE PRESIDENT, CHIEF RISK OFFICER
Ralph R. Layman, PRESIDENT AND CHIEF INVESTMENT OFFICER - PUBLIC EQUITY
INVESTMENTS (SINCE JULY 2009)
Maureen B. Mitchell, PRESIDENT - INSTITUTIONAL SALES AND MARKETING (SINCE JULY
2009)
Matthew J. Simpson, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
Judith A. Studer, CHIEF MARKET STRATEGIST (SINCE JULY 2009)
Don W. Torey, PRESIDENT - ALTERNATIVE INVESTMENTS
John J. Walker, EXECUTIVE VICE PRESIDENT, CHIEF OPERATING OFFICER
David Wiederecht, PRESIDENT AND CHIEF INVESTMENT OFFICER - INVESTMENT STRATEGIES
29
INVESTMENT ADVISER
GE ASSET MANAGEMENT INCORPORATED
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
DISTRIBUTOR
GE INVESTMENT DISTRIBUTORS, INC.
MEMBER FINRA AND SIPC
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission for the first and third quarters of each
fiscal year on Form N-Q. The Fund's Forms N-Q, as well as a description of
the policies and procedures that the Fund uses to determine how to vote
proxies (if any) relating to portfolio securities is available without
charge (i) upon request, by calling 1-800-493-3042; (ii) on the Fund's
website at http://www.geam.com; and (iii) on the Commission's website at
http://www.sec.gov. The Fund's Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC--information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to
portfolio securities during the most recently disclosed 12-month period
ended June 30 is available without charge (i) through the Fund's website
at http://www.geam.com; and (ii) on the Commission's website at
http://www.sec.gov.
[LOGO] GE
GE Investments Funds, Inc.
International Equity Fund
Annual Report
December 31, 2009
[LOGO] GE
GE Investments Funds, Inc.
International Equity Fund Contents
- ------------------------------------------------------------
NOTES TO PERFORMANCE.................................... 1
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS.............. 2
NOTES TO SCHEDULE OF INVESTMENTS........................ 9
FINANCIAL STATEMENTS
Financial Highlights................................. 10
Statement of Assets and Liabilities.................. 11
Statement of Operations.............................. 12
Statements of Changes in Net Assets.................. 13
Notes to Financial Statements........................ 14
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. 22
TAX INFORMATION......................................... 23
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL........... 24
ADDITIONAL INFORMATION.................................. 27
INVESTMENT TEAM......................................... 30
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
Notes to Performance December 31, 2009
- ---------------------------------------------------------------------
Information on the following performance pages relating to the GE Investments
International Equity Fund one year total return and Schedule of Investments is
audited. All other information, including the portfolio manager Q&A pages, is
unaudited.
Total returns take into account changes in share price and assume reinvestment
of all dividends and capital gains distributions, if any. Total returns shown
are net of Fund expenses but do not reflect fees and charges associated with
the variable contracts such as administrative fees, account charges and
surrender charges, which, if reflected, would reduce the Fund's total returns
for all periods shown.
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be higher or lower than the performance
data quoted. Periods less than one year are not annualized. Please call
800-493-3042 or visit the Fund's website at http://www.geam.com for the most
recent month-end performance data.
An investment in a Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency. An investment in a Fund is subject to risk, including
possible loss of principal invested.
- --------------
GE INVESTMENT DISTRIBUTORS, INC., MEMBER OF FINRA & SIPC, IS THE PRINCIPAL
UNDERWRITER AND DISTRIBUTOR OF THE GE INVESTMENT FUNDS, INC. AND A WHOLLY OWNED
SUBSIDIARY OF GE ASSET MANAGEMENT INCORPORATED, THE INVESTMENT ADVISER OF THE
FUND.
The Morgan Stanley Capital International EAFE Index (MSCI(R) EAFE(R) Index) is
an unmanaged index and do not reflect the actual cost of investing in the
instruments that comprise the index. The MSCI(R) EAFE(R) Index is a market
capitalization-weighted index of equity securities of companies domiciled in
various countries. The Index is designed to represent the performance of
developed stock markets outside the U.S. and Canada and excludes certain market
segments unavailable to U.S. based investors. The results shown for the
foregoing index assume the reinvestment of net dividends or interest.
The peer universe of the underlying annuity funds used in our peer group
average return calculation is based on the blend of Morningstar peer
categories, as shown. Morningstar is an independent mutual fund rating service.
A Fund's performance may be compared to or ranked within a universe of mutual
funds with investment objectives and policies similar but not necessarily
identical to the Fund's.
(C)2009 Morningstar, Inc. All Rights Reserved. The information contained
herein: (1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is no warranted to be accurate, complete
or timely. Neither Morningstar nor its content providers are responsible for
any damage or losses relating from any use of this information. Past
performance is no guarantee or future results.
1
International Equity Fund
- --------------------------------------------------------------------------------
[PHOTO] Ralph R. Layman
RALPH R. LAYMAN
THE INTERNATIONAL EQUITY FUND IS MANAGED BY A TEAM OF PORTFOLIO MANAGERS THAT
INCLUDES BRIAN HOPKINSON, RALPH R. LAYMAN, PAUL NESTRO, JONATHAN L. PASSMORE
AND MICHAEL J. SOLECKI. AS LEAD PORTFOLIO MANAGER FOR THE FUND, MR. LAYMAN
OVERSEES THE ENTIRE TEAM AND ASSIGNS A PORTION OF THE FUND TO EACH MANAGER,
INCLUDING HIMSELF. EACH PORTFOLIO MANAGER IS LIMITED TO THE MANAGEMENT OF HIS
OR HER PORTION OF THE FUND, THE SIZE OF THE PORTION WHICH MR. LAYMAN DETERMINES
ON AN ANNUAL BASIS. THE PORTFOLIO MANAGERS DO NOT OPERATE INDEPENDENTLY OF EACH
OTHER, RATHER, THE TEAM OPERATES COLLABORATIVELY, COMMUNICATING PURCHASES OR
SALES OF SECURITIES ON BEHALF OF THE FUND.
RALPH R. LAYMAN IS PRESIDENT AND CHIEF INVESTMENT OFFICER -- PUBLIC EQUITIES
AND A DIRECTOR AT GE ASSET MANAGEMENT. HE MANAGES THE OVERALL PUBLIC EQUITY
INVESTMENTS FOR GE ASSET MANAGEMENT. MR. LAYMAN HAS LED THE TEAM OF PORTFOLIO
MANAGERS FOR THE INTERNATIONAL EQUITY FUND SINCE 1997. MR. LAYMAN JOINED GE
ASSET MANAGEMENT IN 1991 AS SENIOR VICE PRESIDENT FOR INTERNATIONAL INVESTMENTS
AND BECAME AN EXECUTIVE VICE PRESIDENT IN 1992, PRESIDENT --INTERNATIONAL
EQUITIES IN MARCH 2007 AND PRESIDENT -- PUBLIC EQUITIES SINCE JULY 2009.
BRIAN HOPKINSON IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS BEEN
A PORTFOLIO MANAGER FOR THE FUND SINCE OCTOBER 1996. PRIOR TO JOINING GE ASSET
MANAGEMENT, MR. HOPKINSON WORKED FOR FIDUCIARY TRUST INTERNATIONAL IN BOTH
LONDON AND NEW YORK.
PAUL NESTRO IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS BEEN A
MEMBER OF THE PORTFOLIO MANAGEMENT TEAM FOR THE INTERNATIONAL EQUITY FUND SINCE
FEBRUARY 2007. MR. NESTRO JOINED GE ASSET MANAGEMENT IN 1993 AS A PERFORMANCE
AND ATTRIBUTION ANALYST IN U.S. EQUITIES. HE BECAME A SENIOR PERFORMANCE AND
ATTRIBUTION ANALYST IN 1994 AND SINCE 1996 HAS BEEN AN ANALYST AND PORTFOLIO
MANAGER IN THE INTERNATIONAL EQUITIES GROUP.
JONATHAN L. PASSMORE IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS
SERVED AS A PORTFOLIO MANAGER OF THE INTERNATIONAL EQUITY FUND SINCE JANUARY
2002. PRIOR TO JOINING GE ASSET MANAGEMENT IN JANUARY 2001, HE WAS WITH MERRILL
LYNCH FOR SIX YEARS, MOST RECENTLY AS DIRECTOR, INTERNATIONAL EQUITY.
MICHAEL J. SOLECKI IS A SENIOR VICE PRESIDENT AND CHIEF INVESTMENT OFFICER --
INTERNATIONAL EQUITIES AT GE ASSET MANAGEMENT. HE HAS SERVED AS A PORTFOLIO
MANAGER OF THE INTERNATIONAL EQUITY FUND SINCE SEPTEMBER 1997. HE JOINED GE
ASSET MANAGEMENT IN 1990 AS AN INTERNATIONAL EQUITY ANALYST. HE BECAME A VICE
PRESIDENT FOR INTERNATIONAL EQUITY PORTFOLIOS IN 1996 AND SENIOR VICE PRESIDENT
IN 2000.
Q. HOW DID THE INTERNATIONAL EQUITY FUND PERFORM COMPARED TO ITS BENCHMARK AND
MORNINGSTAR PEER GROUP FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2009?
A. For the twelve-month period ended December 31, 2009, the International
Equity Fund returned 27.68% for Class 1 shares and 26.47% for Class 4
shares. The MSCI EAFE Index, the Fund's benchmark, returned 31.78% and the
Fund's Morningstar peer group of 135 US Insurance Foreign Large Blend funds
returned an average of 29.20% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE?
A. For the first ten weeks of the year, markets fell at a faster rate than what
was experienced in 2008. However, evidence that world governments were
prepared to use all available tools to support the global economy prompted a
refocus on valuations but also on survivability. Massive cash on the
sidelines supported a turnaround in market sentiment while second and third
quarter earnings beat modest expectations. The fear of being short replaced
the fear of being long, and bond yields offered little by way of competition
to under-owned stocks.
2
- --------------------------------------------------------------------------------
[GRAPHIC]
Q. WHAT DOMESTIC OR WORLD EVENTS HAD A MAJOR IMPACT ON THE FINANCIAL MARKETS?
A. Fears of systemic financial sector failure drove sentiment at the beginning
of the year but the authorities were determined to prevent such a collapse.
Anecdotal evidence of restocking of depleted inventories and proof that
companies could still be profitable started the recovery. China and India
avoiding recession provided a destination for investment funds and markets
for companies with infrastructure goods and services to sell. As the year
progressed, purchasing manager surveys, confidence indicators and GDP
forecasts all improved although in uneven fashion. The U.S. dollar weakened,
providing support for commodities and boosting emerging markets.
Q. WHICH STOCKS AND SECTORS SIGNIFICANTLY AFFECTED FUND PERFORMANCE?
A. The bulk of the negative attribution came from holdings in financials, most
notably in Japan. Picked for their defensive qualities, Japan's banks (MUFG,
Yokohama) and other financials (Nomura Holdings, Mitsubishi Estate) proved
only too vulnerable to the weakness of the local economy and market. Also,
an underweight in cyclical discretionary stocks, and an overweight in
defensive staples underperformed in the recovery.
Positive attribution came from holdings in energy (Paladin Resources,
Petrobras) boosted by higher prices, telecom stocks for their defensive
qualities, and utilities, a significant underweight in the Fund.
Q. DID THE WEIGHTINGS/COUNTRY ALLOCATIONS OF THE FUND CHANGE? WHY?
A. The overweight in consumer staples was reduced, based on weakening
fundamentals and achievement of valuation targets. Similarly the underweight
in consumer discretionary was reduced as company fundamentals (in autos and
retail) screened better under our investment approach. The materials weight
(including basic resources) increased to overweight based on commodity price
gains driven by China growth and the overall cash weight declined as
conviction improved regarding the global outlook.
The weight in emerging markets increased as the China growth story created a
ripple effect in both Asia and some of the resource supplier nations in the
developing world.
Q. WHAT WERE THE MAJOR BUYS AND SELLS FOR THE PERIOD AND WHY?
A. Several new holdings were added to the Fund's portfolio including HSBC
Holdings and Deutsche Boerse under the improving climate for financial
stocks that may benefit from stricter regulation. Also, Yamada Denki
(retail), Suzuki (autos) and Nomura Holdings (banking) were added in Japan
for their attractive valuations and ability to perform in any local recovery.
Eliminations and trims included East Japan Rail and Nintendo for
deteriorating fundamentals and Vodafone Group (UK) for its inability to
convert its widespread operational depth to meaningful improvements in cash
earnings growth.
3
International Equity Fund
- --------------------------------------------------------------------------------
Understanding Your Fund's Expenses
As a shareholder of the Fund you incur ongoing expenses, which include
portfolio management fees, professional fees, administrative fees and other
Fund expenses. The following example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors during the period. The information in the
following table is based on an investment of $1,000, which is invested at the
beginning of the period and held for the entire six-month period ended
December 31, 2009.
Actual Expenses
The first section of the table provides information about actual account values
and actual expenses. You may use the information in this section, together with
the amount you invested, to estimate the expenses that you paid over the
period. To do so, simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number given for your class under the heading "Expenses Paid During Period."
Hypothetical Example for Comparison Purposes
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and
an assumed rate of return of 5% per year before expenses, which is not the
Fund's actual return. You may use this information to compare the ongoing costs
of investing in the Fund and other funds. To do so, compare this 5%
hypothetical example with the 5% hypothetical examples that appear in the
shareholders reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
July 1, 2009 - December 31, 2009
- ----------------------------------------------------------------------------------------------
Account value at the Account value at the Expenses paid
beginning of the period ($) end of the period ($) during the period ($)*
- ----------------------------------------------------------------------------------------------
Actual Fund Return**
- ----------------------------------------------------------------------------------------------
Class 1 1,000.00 1,185.62 9.26
Class 4 1,000.00 1,176.49 11.69
- ----------------------------------------------------------------------------------------------
Hypothetical 5% Return (2.5% for the period)
- ----------------------------------------------------------------------------------------------
Class 1 1,000.00 1,016.60 8.54
Class 4 1,000.00 1,014.37 10.81
- ----------------------------------------------------------------------------------------------
*Expenses are equal to the Fund's annualized expense ratio of 1.68% for Class 1
Shares and 2.13% for Class 4 Shares (for the period July 1, 2009--December 31,
2009), multiplied by the average account value over the period, multiplied by
184/365 (to reflect six months period)
**Actual Fund Returns for six-month period ended December 31, 2009 were as
follows: 18.56% for Class 1 shares, and 17.65% for Class 4 shares.
4
International Equity Fund
- --------------------------------------------------------------------------------
CHANGE IN VALUE OF A $10,000 INVESTMENT
CLASS 1 SHARES
- --------------------------------------------------------------------------------
[CHART]
International Equity Fund MSCI EAFE Index
------------------------- ---------------
Dec 31, 1999 $10,000.00 $10,000.00
Dec 1, 2000 8,728.06 8,583.27
Dec 1, 2001 6,907.54 6,728.09
Dec 1, 2002 5,261.46 5,655.63
Dec 1, 2003 7,255.94 7,837.90
Dec 1, 2004 8,405.92 9,424.85
Dec 1, 2005 9,935.36 10,700.56
Dec 1, 2006 12,388.56 13,519.15
Dec 1, 2007 15,234.92 15,030.65
Dec 1, 2008 8,252.08 8,510.59
Dec 1, 2009 10,536.43 11,214.92
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 2009
- --------------------------------------------------------------------------------
CLASS 1 SHARES (Inception date: 5/1/95)
- --------------------------------------------------------------------------------
ONE FIVE TEN ENDING VALUE OF A
YEAR YEAR YEAR $10,000 INVESTMENT
-----------------------------------------------------------------------
International Equity Fund 27.68% 4.62% 0.52% $10,536
-----------------------------------------------------------------------
MSCI EAFE Index 31.78% 3.54% 1.15% $11,215
-----------------------------------------------------------------------
Morningstar peer group average* 29.20% 3.34% -0.05%
-----------------------------------------------------------------------
CLASS 4 SHARES
- --------------------------------------------------------------------------------
[CHART]
International Equity Fund MSCI EAFE Index
------------------------- ---------------
May 1, 2008 $10,000.00 $10,000.00
Jun 1, 2008 9,233.98 9,271.53
Sep 1, 2008 7,298.05 7,365.34
Dec 1, 2008 5,521.08 5,895.73
Mar 1, 2009 4,692.92 5,074.07
Jun 1, 2009 5,935.16 6,364.50
Sep 1, 2009 6,763.33 7,603.53
Dec 1, 2009 6,982.68 7,769.16
- --------------------------------------------------------------------------------
TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 2009
- --------------------------------------------------------------------------------
CLASS 4 SHARES (Inception date: 5/1/08)
- --------------------------------------------------------------------------------
ONE SINCE ENDING VALUE OF A
YEAR INCEPTION $10,000 INVESTMENT
---------------------------------------------------------------------
International Equity Fund 26.47% -19.34% $6,983
---------------------------------------------------------------------
MSCI EAFE Index 31.78% -14.04% $7,769
---------------------------------------------------------------------
Morningstar peer group average** 29.20%
---------------------------------------------------------------------
INVESTMENT PROFILE [GRAPHIC]
A mutual fund designed for investors
who seek long-term growth of capital
by investing at least 80% of its net
assets in common and preferred stocks
and other types of equity securities
under normal circumstances. The Fund
invests primarily in developed and
emerging market countries outside the
United States.
PORTFOLIO COMPOSITION AS OF DECEMBER 31, 2009
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $18,312 (in thousands)
[CHART]
Continental Europe 47.8%
United Kingdom 19.0%
Japan 15.6%
Emerging Asia 5.1%
Pacific Rim 3.8%
Canada 3.5%
Latin America 3.3%
Emerging Europe 1.4%
United States 0.5%
TOP TEN LARGEST HOLDINGS
AS OF DECEMBER 31, 2009
as a % of Market Value
-----------------------------------
Roche Holding AG 3.42%
-----------------------------------
Nomura Holdings Inc. 2.90%
-----------------------------------
Nestle S.A. (Regd.) 2.87%
-----------------------------------
Banco Santander S.A. (Regd.) 2.69%
-----------------------------------
BNP Paribas 2.65%
-----------------------------------
HSBC Holdings PLC 2.49%
-----------------------------------
Reckitt Benckiser Group PLC 2.38%
-----------------------------------
Rio Tinto PLC (Regd.) 2.03%
-----------------------------------
Bayer AG 2.01%
-----------------------------------
BHP Billiton PLC 1.99%
-----------------------------------
* MORNINGSTAR PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS
FOR THE ONE YEAR, FIVE-YEAR, AND TEN-YEAR PERIODS INDICATED IN THE FOREIGN
LARGE BLEND PEER GROUP CONSISTING OF 135, 97 AND 51 UNDERLYING ANNUITY FUNDS,
RESPECTIVELY.
**MORNINGSTAR PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS
FOR THE ONE YEAR PERIOD INDICATED IN THE FOREIGN LARGE BLEND PEER GROUP
CONSISTING OF 135 UNDERLYING ANNUITY FUNDS.
SEE NOTES TO PERFORMANCE ON PAGE 1 FOR FURTHER INFORMATION, INCLUDING AN
EXPLANATION OF MORNINGSTAR PEER CATEGORIES.
PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPH AND TABLE DO
NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
5
INTERNATIONAL EQUITY FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
NUMBER
OF SHARES VALUE
COMMON STOCK -- 99.4% +
--------------------------------------------------------------------
AUSTRALIA -- 2.5%
Brambles Ltd............................ 44,971 $ 273,080
Paladin Energy Ltd...................... 28,855 107,845 /(a)/
Telstra Corporation Ltd................. 25,108 77,286
458,211
BRAZIL -- 2.7%
Banco Santander Brasil S.A.............. 11,500 157,670
Petroleo Brasileiro S.A. ADR............ 3,705 157,055 /(d)/
Vale S.A................................ 6,964 172,846
487,571
CANADA -- 3.5%
Kinross Gold Corp....................... 3,044 56,243
Potash Corp of Saskatchewan Inc......... 2,933 320,032
Research In Motion Ltd.................. 2,254 152,718 /(a)/
Suncor Energy Inc....................... 3,041 107,937
636,930
CHILE -- 0.3%
Sociedad Quimica y Minera de Chile S.A.
ADR (Series B)......................... 1,628 61,164
CHINA -- 1.0%
China Mobile Ltd........................ 8,490 78,989
China South Locomotive and Rolling
Stock Corp............................. 129,949 94,890
173,879
DENMARK -- 0.5%
A P Moller--Maersk A/S (Series B)....... 5 35,161
G4S PLC................................. 12,336 51,550
86,711
FINLAND -- 0.4%
Nokia Oyj............................... 6,186 80,052
FRANCE -- 13.8%
Alstom S.A.............................. 351 24,568
AXA S.A................................. 6,902 162,187 /(d)/
BNP Paribas............................. 6,103 484,483 /(d)/
Cie Generale d'Optique Essilor
International S.A...................... 5,219 312,418
Credit Agricole S.A..................... 16,018 281,349
Groupe Danone........................... 3,330 204,306
Schneider Electric S.A.................. 1,176 136,851
Total S.A............................... 5,116 328,875
Veolia Environnement.................... 6,049 199,561
Vinci S.A............................... 2,488 140,119
Vivendi................................. 8,775 260,658
2,535,375
NUMBER
OF SHARES VALUE
GERMANY -- 10.0%
Adidas AG............................ 3,042 $ 164,909
Bayer AG............................. 4,602 368,576
Daimler AG (Regd.)................... 2,062 109,921
Deutsche Boerse AG................... 2,152 178,355
E.ON AG.............................. 3,661 153,796
Linde AG............................. 2,190 264,077
Metro AG............................. 2,533 154,827
Siemens AG (Regd.)................... 3,913 359,400
ThyssenKrupp AG...................... 2,256 84,879
1,838,740
HONG KONG -- 1.0%
Esprit Holdings Ltd.................. 27,222 180,594
INDIA -- 0.6%
Larsen & Toubro Ltd.................. 3,027 108,962
IRELAND -- 1.0%
CRH PLC.............................. 6,327 173,083
ITALY -- 2.9%
ENI S.p.A............................ 6,963 177,467
Intesa Sanpaolo S.p.A................ 47,783 215,204
Saipem S.p.A......................... 1,696 58,579
UniCredit S.p.A...................... 22,341 74,765
526,015
JAPAN -- 15.6%
Asahi Glass Company Ltd.............. 5,000 47,581
Daiichi Sankyo Company Ltd........... 4,100 86,020
Daikin Industries Ltd................ 1,000 39,514
Mitsubishi Corp...................... 3,000 74,758
Mitsubishi Estate Company Ltd........ 13,982 223,331
Mitsubishi Heavy Industries Ltd...... 26,000 91,740
Mitsubishi UFJ Financial Group Inc... 70,290 346,382
Nomura Holdings Inc.................. 71,442 531,519
Shiseido Company Ltd................. 6,647 127,804
Sony Financial Holdings Inc.......... 77 200,473 /(a)/
Sumitomo Metal Industries Ltd........ 95,002 255,479 /(d)/
Sumitomo Mitsui Financial Group Inc.. 577 16,564
Suzuki Motor Corp.................... 7,000 172,463
The Bank of Yokohama Ltd............. 29,130 132,874
Toyota Motor Corp.................... 6,746 284,540
Yamada Denki Company Ltd............. 3,370 227,443
2,858,485
MEXICO -- 0.3%
America Movil SAB de C.V. ADR
(Series L).......................... 1,184 55,624
NETHERLANDS -- 2.7%
Heineken N.V......................... 2,332 110,801
Koninklijke Ahold N.V................ 7,927 105,110
Koninklijke Philips Electronics N.V.. 9,692 286,729
502,640
See Notes to Schedule of Investments on page 9 and Notes to Financial
Statements on page 14.
6
INTERNATIONAL EQUITY FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
NUMBER
OF SHARES VALUE
RUSSIA -- 0.6%
LUKOIL ADR......................... 659 $ 37,761
Mobile Telesystems OJSC ADR........ 1,388 67,859
105,620
SINGAPORE -- 0.3%
CapitaLand Ltd..................... 17,500 51,948
SOUTH AFRICA -- 0.8%
MTN Group Ltd...................... 9,669 154,235
SOUTH KOREA -- 1.9%
KB Financial Group Inc............. 1,745 88,856 /(a)/
KB Financial Group Inc.ADR......... 493 25,069
Samsung Electronics Company Ltd.... 120 82,288
Samsung Electronics Company Ltd.
GDR............................... 437 152,950 /(b)/
349,163
SPAIN -- 4.7%
Banco Santander S.A. (Regd.)....... 29,735 491,772 /(d)/
Iberdrola S.A...................... 15,275 146,499
Telefonica S.A..................... 8,115 227,321
865,592
SWEDEN -- 0.7%
Hennes & Mauritz AB (Series B)..... 1,693 94,046
Telefonaktiebolaget LM Ericsson
(Series B)........................ 4,226 38,984
133,030
SWITZERLAND -- 11.0%
ABB Ltd. (Regd.)................... 6,862 132,316 /(a)/
Credit Suisse Group AG (Regd.)..... 3,667 181,791
Nestle S.A. (Regd.)................ 10,824 525,683
Novartis AG (Regd.)................ 4,246 232,028
Roche Holding AG................... 3,656 625,646
Syngenta AG........................ 681 192,450
Zurich Financial Services AG....... 563 123,168
2,013,082
TAIWAN -- 1.6%
Taiwan Semiconductor Manufacturing
Company Ltd....................... 124,634 251,196
Taiwan Semiconductor Manufacturing
Company Ltd. ADR.................. 4,244 48,551
299,747
UNITED KINGDOM -- 19.0%
BG Group PLC....................... 12,148 219,300
BHP Billiton PLC................... 11,431 364,341 /(d)/
BP PLC............................. 18,108 174,816
G4S PLC............................ 25,703 107,713
HSBC Holdings PLC.................. 39,971 455,904
NUMBER
OF SHARES VALUE
Lloyds Banking Group PLC........... 266,041 $ 214,005 /(d)/
National Grid PLC.................. 31,197 340,439
Prudential PLC..................... 25,958 265,655 /(d)/
Reckitt Benckiser Group PLC........ 8,063 436,356
Rio Tinto PLC (Regd.).............. 6,901 372,551
Tesco PLC.......................... 43,515 300,135
The Capita Group PLC............... 3,734 45,140
Vodafone Group PLC................. 78,482 181,702 /(d)/
3,478,057
TOTAL COMMON STOCK
(COST $17,790,487)................ 18,214,510
------------------------------------------------------------------
OTHER INVESTMENTS -- 0.1%
------------------------------------------------------------------
GEI Investment Fund
(COST $15,127).................... 11,496 /(e)/
TOTAL INVESTMENTS IN SECURITIES
(COST $17,805,614)................ 18,226,006
------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 0.5%
------------------------------------------------------------------
GE Money Market Fund Institutional
Class 0.01%
(COST $85,663).................... 85,663 /(c,f)/
TOTAL INVESTMENTS
(COST $17,891,277)................ 18,311,669
OTHER ASSETS AND LIABILITIES,
NET -- 0.0%*...................... 2,413
-----------
NET ASSETS -- 100.0%............... $18,314,082
===========
OTHER INFORMATION
The GEI International Equity Fund had the following short futures contracts
open at December 31,2009:
NUMBER CURRENT UNREALIZED
EXPIRATION OF NOTIONAL APPRECIATION/
DESCRIPTION DATE CONTRACTS VALUE (DEPRECIATION)
---------------------------------------------------------------
DJ Euro Stoxx 50
Index Futures March 2010 1 $(42,641) $(333)
See Notes to Schedule of Investments on page 9 and Notes to Financial
Statements on page 14.
7
INTERNATIONAL EQUITY FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
The GEI International Equity was invested in the following Industries at
December 31, 2009:
PERCENTAGE (BASED
INDUSTRY ON MARKET VALUE)
-----------------------------------------------------------
Commercial Banks 16.30%
Pharmaceuticals 7.17%
Oil, Gas & Consumable Fuels 7.16%
Metals & Mining 7.13%
Chemicals 4.57%
Insurance 4.10%
Food Products 3.99%
Capital Markets 3.90%
Industrial Conglomerates 3.53%
Automobiles 3.10%
Food & Staples Retailing 3.06%
Multi-Utilities 2.95%
Wireless Telecommunication Services 2.94%
Semiconductors & Semiconductor Equipment 2.92%
Specialty Retail 2.74%
Household Products 2.38%
Commercial Services & Supplies 2.36%
Healthcare Equipment & Supplies 1.71%
Diversified Telecommunication Services 1.66%
Electric Utilities 1.64%
Electrical Equipment 1.60%
Real Estate Management & Development 1.50%
Communications Equipment 1.48%
Media 1.42%
Construction & Engineering 1.36%
Machinery 1.02%
Diversified Financial Services 0.97%
Construction Materials 0.95%
Textiles Apparel & Luxury Goods 0.90%
Personal Products 0.70%
Beverages 0.61%
Building Products 0.48%
Short-Term 0.47%
Trading Companies & Distributors 0.41%
Energy Equipment & Services 0.32%
Professional Services 0.25%
Marine 0.19%
Other Investments 0.06%
------
100.00%
======
See Notes to Schedule of Investments on page 9 and Notes to Financial
Statements on page 14.
8
Notes to Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
The views expressed in this document reflect our judgment as of the publication
date and are subject to change at any time without notice. The securities cited
may not represent current or future holdings and should not be considered as a
recommendation to purchase or sell a particular security. See the prospectus
for complete descriptions of investment objectives, policies, risks and
permissible investments.
(a)Non-income producing security.
(b)Pursuant to Rule 144A of the Securities Act of 1933, these securities may be
resold in transactions exempt from registration, normally to qualified
institutional buyers. At December 31, 2009, these securities amounted to
$152,950 or 0.84% of the net assets of the GE Investments International
Equity Fund. These securities have been determined to be liquid using
procedures established by the Board of Trustees.
(c)Coupon amount represents effective yield.
(d)At December 31, 2009, all or a portion of this security was pledged to cover
collateral requirements for futures, options, forward foreign currency
contracts and/or TBA's.
(e)GE Asset Management Incorporated (GEAM) is the investment advisor of the
Fund and also serves as investment advisor of the GEI Investment Fund.
(f)GEAM, the investment adviser of the Fund, also serves as investment adviser
of the GE Funds-GE Money Market Fund.
* Less than 0.1%.
+ Percentages are based on net assets as of December 31, 2009.
Abbreviations:
ADR American Depository Receipt
GDR Global Depository Receipt
REGD. Registered
TBA To be Announced
9
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
-----------------------------------------------------------
CLASS 1
----------------------------------------------------------
12/31/09 12/31/08 12/31/07 12/31/06 12/31/05
-------- -------- -------- -------- -------- -
INCEPTION DATE -- -- -- -- 5/1/95
Net asset value, beginning of period....... $ 0.39 $ 14.67 $ 14.08 $ 11.42 $ 9.76
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)............. 0.01 0.51 0.23 0.15 0.13
Net realized and unrealized
gains/(losses) on investments........... 0.10 (7.04) 2.98 2.67 1.65
- -----------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM
INVESTMENT OPERATIONS..................... 0.11 (6.53) 3.21 2.82 1.78
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.................... 0.01 0.51 0.23 0.16 0.12
Net realized gains....................... 0.00 7.24 2.39 -- --
- -----------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS........................ 0.01 7.75 2.62 0.16 0.12
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period............. $ 0.49 $ 0.39 $ 14.67 $ 14.08 $ 11.42
- -----------------------------------------------------------------------------------------------------------
TOTAL RETURN /(A)/......................... 27.68% (45.83)% 22.98% 24.69% 18.19%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands). $18,307 $17,920 $84,272 $80,648 $65,450
Ratios to average net assets:
Net investment income.................. 1.28% 2.57% 1.30% 1.16% 1.19%
Gross Expenses......................... 1.88% 1.29% 1.13% 1.13% 1.25%
Net Expenses........................... 1.68%/(b,c)/ 1.18%/(b,c)/ 1.13% 1.13% 1.25%
Portfolio turnover rate................ 46% 41% 32% 34% 53%
-------------------------------
CLASS 4
-------------------------------
12/31/09 12/31/08
-------- --------
INCEPTION DATE -- 5/1/08
Net asset value, beginning of period....... $0.40 $14.36
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)............. (0.01) 0.10**
Net realized and unrealized
gains/(losses) on investments........... 0.12 (6.35)
- ---------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM
INVESTMENT OPERATIONS..................... 0.11 (6.25)
- ---------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.................... 0.01 0.47
Net realized gains....................... 0.00 7.24
- ---------------------------------------------------------------------------
TOTAL DISTRIBUTIONS........................ 0.01 7.71
- ---------------------------------------------------------------------------
Net asset value, end of period............. $0.50 $0.40
- ---------------------------------------------------------------------------
TOTAL RETURN /(A)/......................... 26.47% (44.79)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands). $7 $6
Ratios to average net assets:
Net investment income.................. 0.77% 1.63%
Gross Expenses......................... 2.33% 1.74%*
Net Expenses........................... 2.13%/(b,c)/ 1.56%/(b,c)/*
Portfolio turnover rate................ 46% 41%
NOTES TO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(a)Total returns are historical and assume changes in share price, reinvestment
of dividends and capital gains distributions and do not include the effect
of insurance contract charges.
(b)Reflects GEAM's waiver of a portion of the Fund's management fee in an
amount equal to the management fee earned by GEAM with respect to the Fund's
investment in the GE Funds - GE Money Market Fund.
(c)Reflects GEAM's contractual arrangement with GE Investments Funds, Inc. to
limit the Fund's management fee to 0.80% of the average daily net assets of
the Fund until April 30, 2010. Please see Note 4 of the Notes to Financial
Statements for further details.
* Annualized for periods less than one year.
**Per share values have been calculated using the average share method.
See Notes to Financial Statements.
10
Statement of Assets INTERNATIONAL
and Liabilities DECEMBER 31, 2009 EQUITY
FUND
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at market (cost $17,790,487)......... $18,214,510
Investments in affiliated securities, at market (cost $15,127).. 11,496
Short-term affiliated investments (at amortized cost)........... 85,663
Foreign cash (cost $2,593)...................................... 2,593
Receivable for investments sold................................. 145,194
Income receivables.............................................. 41,127
Receivable for fund shares sold................................. 3,696
Variation margin receivable..................................... 230
Other assets.................................................... 70,659
- --------------------------------------------------------------------------------
TOTAL ASSETS.................................................. 18,575,168
- --------------------------------------------------------------------------------
LIABILITIES
Distribution payable to shareholders............................ 72
Payable for investments purchased............................... 122,526
Payable for fund shares redeemed................................ 2
Payable to GEAM................................................. 12,539
Accrued other expenses.......................................... 125,947
- --------------------------------------------------------------------------------
TOTAL LIABILITIES............................................. 261,086
- --------------------------------------------------------------------------------
NET ASSETS........................................................ $18,314,082
- --------------------------------------------------------------------------------
NET ASSETS CONSIST OF :
Capital paid in................................................. 25,516,172
Undistributed (distribution in excess of) net investment income. (18,387)
Accumulated net realized gain (loss)............................ (7,607,804)
Net unrealized appreciation/ (depreciation) on:
Investments................................................... 420,392
Futures....................................................... (333)
Foreign currency related transactions......................... 4,042
- --------------------------------------------------------------------------------
NET ASSETS........................................................ $18,314,082
- --------------------------------------------------------------------------------
CLASS 1:
NET ASSETS........................................................ 18,307,071
Shares outstanding ($0.01 par value; unlimited shares authorized). 37,383,766
Net asset value per share......................................... 0.49
CLASS 4:
NET ASSETS........................................................ 7,011
Shares outstanding ($0.01 par value; unlimited shares authorized). 13,965
Net asset value per share......................................... 0.50
See Notes to Financial Statements.
11
Statement of Operations INTERNATIONAL
FOR THE YEAR ENDED DECEMBER 31, 2009 EQUITY
FUND
---------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend................................................. $ 561,766
Interest................................................. 1,323
Interest from affliated investments...................... 1,721
Less: Foreign taxes withheld............................. (56,973)
---------------------------------------------------------------------------
TOTAL INCOME............................................... 507,837
---------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees......................... 171,760
Distributors Fees (Notes 4)
Class 4................................................ 27
Transfer agent........................................... 17,928
Custody and accounting expenses.......................... 94,353
Professional fees........................................ 19,810
Registration expenses.................................... 3,531
Other expenses........................................... 15,953
---------------------------------------------------------------------------
TOTAL EXPENSES BEFORE WAIVER AND REIMBURSEMENT............. 323,362
---------------------------------------------------------------------------
Less : Expenses Waived or borne by the adviser........... (34,328)
---------------------------------------------------------------------------
Less: Expenses reimbursed by the adviser................. (925)
---------------------------------------------------------------------------
Net expenses............................................. 288,109
---------------------------------------------------------------------------
NET INVESTMENT INCOME...................................... 219,728
---------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED (LOSS) ON:
Investments............................................ (4,738,057)
Futures................................................ (38,813)
Foreign currency transactions.......................... (638)
INCREASE IN UNREALIZED APPRECIATION/(DEPRECIATION) ON:
Investments............................................ 8,519,974
Futures................................................ 4,544
Foreign currency transactions.......................... 2,223
---------------------------------------------------------------------------
Net realized and unrealized gain on investments.......... 3,749,233
---------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....... $ 3,968,961
---------------------------------------------------------------------------
See Notes to Financial Statements.
12
Statements of INTERNATIONAL
Changes in Net Assets EQUITY
FUND
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2009 2008
- -----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income....................................................................... $ 219,728 $ 1,124,727
Net realized gain (loss) on investments, futures and foreign currency transactions........... (4,777,508) 10,493,070
Net increase (decrease) in unrealized appreciation /(depreciation) on investments, futures
and foreign currency transactions.......................................................... 8,526,741 (33,294,597)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations...................................................... 3,968,961 (21,676,800)
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class 1.................................................................................... (293,918) (1,127,691)
Class 4.................................................................................... (83) (329)
Net realized gains
Class 1.................................................................................... -- (16,150,682)
Class 4.................................................................................... -- (5,045)
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS............................................................................ (294,001) (17,283,747)
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions............................ 3,674,960 (38,960,547)
- -----------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares
Class 1.................................................................................... 779,958 12,325,832
Class 4.................................................................................... -- 10,000
Value of distributions reinvested
Class 1.................................................................................... 293,918 17,278,373
Class 4.................................................................................... 83 5,374
Cost of shares redeemed
Class 1.................................................................................... (4,360,018) (57,006,212)
Class 4.................................................................................... -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net (decrease) from share transactions....................................................... (3,286,059) (27,386,633)
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........................................................ 388,901 (66,347,180)
NET ASSETS
Beginning of period............................................................................ 17,925,181 84,272,361
- -----------------------------------------------------------------------------------------------------------------------------
End of period.................................................................................. $ 18,314,082 $ 17,925,181
- -----------------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF)
NET INVESTMENT INCOME, END OF PERIOD........................................................... $ (18,387) $ 49,987
- -----------------------------------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES
CLASS 1
Shares sold...................................................................................... 1,756,212 935,718
Issued for distributions reinvested.............................................................. 599,686 43,195,968
Shares redeemed.................................................................................. (10,393,580) (4,456,499)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares........................................................... (8,037,682) 39,675,187
- -----------------------------------------------------------------------------------------------------------------------------
CLASS 4
Shares sold...................................................................................... -- 696
Issued for distributions reinvested.............................................................. 163 13,106
Shares redeemed.................................................................................. -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in fund shares...................................................................... 163 13,802
- -----------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
13
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
1. ORGANIZATION OF THE COMPANY
GE Investments Funds, Inc. (the "Company") was incorporated under the laws of
the Commonwealth of Virginia on May 14, 1984 and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Company is composed of fourteen investment
portfolios (collectively the "Funds"), although only the following eleven are
currently being offered: U.S. Equity Fund, S&P 500 Index Fund, Premier Growth
Equity Fund, Core Value Equity Fund, Mid-Cap Equity Fund, Small-Cap Equity
Fund, International Equity Fund (the "Fund"), Total Return Fund, Income Fund,
Money Market Fund and Real Estate Securities Fund.
Shares of the Funds of the Company are offered only to insurance company
separate accounts that fund certain variable life insurance contracts and
variable annuity contracts. These insurance companies may include insurance
companies affiliated with GE Asset Management Incorporated ("GEAM"), the
investment adviser and administrator of each of the Funds.
The Company offers two share classes (Class 1 and Class 4) of the Fund as
investment options for variable life insurance and variable annuity contracts.
Class 4 shares were first offered on May 1, 2008, and Fund shares outstanding
prior to May 1, 2008 were designated as Class 1 shares. Each share class has
different fees and expenses, and as a result, each share class will have
different share price and performance. Not all variable contracts offer both
share class of the Fund.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results may differ from
those estimates.
ACCOUNTING CHANGES
The Financial Accounting Standards Board (FASB) issued FASB Accounting
Standards Codification (ASC) effective for financial statements issued for
interim and annual periods ending after September 15, 2009. The ASC is an
aggregation of previously issued authoritative U.S. generally accepted
accounting principles (GAAP) in one comprehensive set of guidance organized by
subject area. In accordance with the ASC, references to previously issued
accounting standards have been replaced by ASC references. Subsequent revisions
to GAAP will be incorporated into the ASC through Accounting Standards Updates
(ASU).
SUBSEQUENT EVENTS
Subsequent events after the balance sheet date through the date that the
financial statements were issued, have been evaluated in the preparation of the
Financial Statement.
The following summarizes the significant accounting policies of the Fund:
SECURITY VALUATION AND TRANSACTIONS
The Fund's portfolio securities are valued generally on the basis of market
quotations. Equity securities generally are valued at the last reported sales
price on the primary market in which they are traded. Portfolio securities
listed on NASDAQ are valued using the NASDAQ Official Closing Price, which may
not necessarily represent the last sale price. If no sales occurred on the
exchange or NASDAQ that day, the portfolio security generally is valued using
the last reported bid price.
Debt securities (other than short-term securities described below) generally
are valued at an evaluated bid as reported by an independent pricing service.
Values obtained from pricing services are based on recent trading activity and
other relevant information which may include market interest rate curves,
referenced credit spreads and estimated prepayment rates where applicable. In
the absence of a reliable price from such a pricing service, debt securities
may be valued based on dealer supplied valuations or quotations. The Fund's
written or purchased options are valued at the last sales price, or if no sales
occurred that day, at the last reported bid price. Short-term investments of
sufficient credit quality with remaining maturities of sixty days or less at
the time of purchase are valued on the basis of amortized cost, which
approximates market value.
All assets and liabilities of the Fund that are initially expressed in foreign
currency values will be converted into U.S. dollars at the WM/Reuters exchange
rate computed at 11:00 a.m., Eastern time.
14
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
If prices are not readily available for a portfolio security, or if it is
believed that a price for a portfolio security does not represent its fair
value, the security may be valued using procedures approved by the Fund's Board
of Directors that are designed to establish its "fair" value.
Foreign securities may be valued with the assistance of an independent fair
value pricing service in circumstances where it is believed that they have been
or would be materially affected by events occurring after the close of the
portfolio security's primary market and before the close of regular trading on
the NYSE. This independent fair value pricing service uses a computerized
system to appraise affected securities and portfolios taking into consideration
various factors and the fair value of such securities may be something other
than the last available quotation or other market price.
GEAM may also separately monitor portfolio securities and, consistent with the
Fund's fair value procedures, apply a different value to a portfolio security
than would be applied had it been priced using market quotations or by an
independent fair value pricing service.
Determining the fair value of securities involves the application of both
subjective and objective considerations. Security values may differ depending
on the methodology used to determine their values, and may differ from the last
quoted sale or closing price. No assurance can be given that use of these fair
value procedures will always better represent the price at which the Fund could
sell the affected portfolio security.
Security transactions are accounted for as of the trade date. Realized gains
and losses on investments sold are recorded on the basis of identified cost for
both financial statement and federal tax purposes.
FAIR VALUE MEASUREMENTS
The Fund adopted ASC 820, FAIR VALUATION MEASUREMENTS AND DISCLOSURES effective
January 1, 2008. This guidance establishes a new framework for measuring fair
value and expands related disclosures. Broadly, the framework requires fair
value to be determined based on the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction
between market participants. It also establishes a three-level valuation
hierarchy based upon observable and non-observable inputs.
For financial assets and liabilities, fair value is the price the Fund would
receive to sell an asset or pay to transfer a liability in an orderly
transaction with a market participant at the measurement date. In the absence
of active markets for the identical assets or liabilities, such measurements
involve developing assumptions based on market observable data and, in the
absence of such data, internal information that is consistent with what market
participants would use in a hypothetical transaction that occurs at the
measurement date.
Observable inputs reflect market data obtained from independent sources, while
unobservable inputs reflect our market assumptions. Preference is given to
observable inputs. These two types of inputs create the following fair value
hierarchy:
Level 1 -- Quoted prices for identical investments in active markets.
Level 2 -- Quoted prices for similar investments in active markets; quoted
prices for identical or similar investments in markets that are not active;
and model-derived valuations whose inputs are observable or whose
significant value drivers are observable.
Level 3 -- Significant inputs to the valuation model are unobservable.
Policies and procedures are maintained to value investments using the best and
most relevant data available. In addition, GEAM performs periodic reviews of
the methodologies used by independent pricing services including price
validation of individual securities.
The following section describes the valuation methodologies the Fund uses to
measure different financial investments at fair value.
When available, the Fund uses quoted market prices to determine the fair value
of investment securities, and they are included in Level 1. Level 1 securities
primarily include publicly-traded equity securities.
When quoted market prices are unobservable, pricing information is obtained
from an independent pricing vendor. The pricing vendor uses various pricing
models for each asset class that are consistent with what other market
participants would use. The inputs and assumptions to the model of the pricing
vendor are derived from market observable sources including: benchmark yields,
reported trades, broker/dealer quotes, issuer spreads, benchmark securities,
bids, offers, and other market-related data. Since
15
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
many fixed income securities do not trade on a daily basis, the methodology of
the pricing vendor uses available information as applicable such as benchmark
curves, benchmarking of like securities, sector groupings, and matrix pricing.
The pricing vendor considers all available market observable inputs in
determining the evaluation for a security. Thus, certain securities may not be
priced using quoted prices, but rather determined from market observable
information. These investments are included in Level 2 and primarily comprise
our portfolio of corporate fixed income, and government, mortgage and
asset-backed securities. In infrequent circumstances, pricing vendors may
provide the Fund with valuations that are based on significant unobservable
inputs, and in those circumstances the investment securities are included in
Level 3.
The Fund uses non-binding broker quotes as the primary basis for valuation when
there is limited, or no, relevant market activity for a specific investment or
for other investments that share similar characteristics. The Fund has not
adjusted the prices obtained. Investment securities priced using non-binding
broker quotes are included in Level 3. As is the case with the primary pricing
vendor, third-party brokers do not provide access to their proprietary
valuation models, inputs and assumptions. Accordingly, GEAM conducts internal
reviews of pricing for all such investment securities periodically to ensure
reasonableness of valuations used in our financial statements. These reviews
are designed to identify prices that appear stale, those that have changed
significantly from prior valuations, and other anomalies that may indicate that
a price may not be accurate. Based on the information available, GEAM believes
that the fair values provided by the brokers are representative of prices that
would be received to sell the assets at the measurement date (exit prices).
Other financial investments are derivative investments that are not reflected
in TOTAL INVESTMENTS, such as futures, forwards, swaps, and written options
contracts, which are valued based on the unrealized appreciation/depreciation
of the instrument.
The Fund uses closing prices for derivatives included in Level 1, which are
traded either on exchanges or liquid over-the counter markets. Derivative
assets and liabilities included in Level 2 primarily represent interest rate
swaps, cross-currency swaps and foreign currency and commodity forward and
option contracts. Derivative assets and liabilities included in Level 3
primarily represent interest rate products that contain embedded optionality or
prepayment features.
In January 2010, FASB issued ASU 2010-06, IMPROVING DISCLOSURES ABOUT FAIR
VALUE MEASUREMENTS. ASU 2010-06 will require reporting entities to make new
disclosures about the amounts and reasons for significant transfers in and out
of Level 1 and Level 2 fair value measurements and inputs and valuation
techniques used to measure fair value for both recurring and nonrecurring fair
value measurements that fall in either Level 2 or Level 3, and information on
purchases, sales, issuances, and settlements in the roll forward of activity in
Level 3 fair value measures. The new disclosures are effective for interim and
annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements. Those disclosures are
effect for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. GEAM does not believe the adoption of ASU
2010-06 will materially impact the financial statement amounts.
The following tables present the funds' investments measured at fair value on a
recurring basis at December 31, 2009:
Level 1 Level 2 Level 3 Total
---------------------------------------------------------------------------
Investments in Securities+ $1,659,143 $16,652,527* $-- $18,311,670
Other Financial Instruments+ (333) -- -- (333)
*AT DECEMBER 31, 2009, THE FOREIGN SECURITIES WERE VALUED WITH THE ASSISTANCE
OF AN INDEPENDENT FAIR VALUE PRICING SERVICE, CAUSING THESE SECURITIES TO MOVE
FROM LEVEL 1 TO LEVEL 2.
+SEE STATEMENT OF INVESTMENTS FOR INDUSTRY CLASSIFICATION.
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities. For example, money
market securities are valued using amortized cost, in accordance with the
Investment Company Act of 1940. Generally, amortized cost reflects the current
fair value of a security, but since
16
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
the value is not obtained from a quoted price in an active market, such
securities are reflected as Level 2. Fair value determinations are required for
securities whose value is affected by a significant event that will materially
affect the value of a domestic or foreign security and which occurs subsequent
to the time of the close of the principal market on which such domestic or
foreign security trades but prior to the calculation of the Fund's NAV.
REPURCHASE AGREEMENTS The Fund may engage in repurchase agreement transactions
with respect to instruments that are consistent with the Fund's investment
objectives or policies. The Fund's custodian or a third party custodian takes
possession of the collateral pledged for investments in repurchase agreements
on behalf of the Fund. The Fund values the underlying collateral daily on a
mark-to-market basis to determine that the value, including accrued interest,
is at least equal to 102% of the repurchase price. In the event the seller
defaults and the value of the security declines, or if the seller enters an
insolvency proceeding, realization of the collateral by the Fund may be delayed
or limited.
SECURITY LENDING The Fund may loan securities to brokers, dealers, and
financial institutions determined by GEAM to be creditworthy, subject to
certain limitations. The Fund continues to receive the interest and dividends
on the loaned securities during the term of the loan. The loans of securities
are secured by collateral in the form of cash or other liquid assets, which are
segregated and maintained with the custodian in an amount at least equal to
102% of the current market value of the loaned securities. During the term of
the loan, the Fund will record any gain or loss in the market value of its
loaned securities and of securities in which cash collateral is invested. The
Fund will also earn interest, net of any rebate, from securities in which cash
collateral is invested. In the event the counterparty (borrower) does not meet
its contracted obligation to return the securities, the Fund may be exposed to
the risk of loss of reacquiring the loaned securities at prevailing market
prices using the proceeds of the sale of the collateral.
FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the prevailing rates of exchange
on a daily basis (on days the New York Stock Exchange is open). Purchases and
sales of securities, income receipts and expense payments denominated in
foreign currencies are translated into U.S. dollars at the prevailing exchange
rate on the respective dates of such transactions.
The Fund does not isolate the portion of the results of operations resulting
from changes in foreign exchange rates of foreign denominated securities from
the fluctuations arising from changes in the market prices of those securities
during the period. Such fluctuations are included in the net realized or
unrealized gain or loss from investments. Net realized gains or losses on
foreign currency transactions represent net gains or losses on sales and
maturities of foreign currency contracts, disposition of foreign currencies,
the difference between the amount of net investment income and withholding
taxes accrued and the U.S. dollar amount actually received or paid, and gains
or losses between the trade and settlement date on purchases and sales of
securities. Net unrealized foreign exchange gains and losses arising from
changes in the value of other assets and liabilities as a result of changes in
foreign exchange rates are included as increases or decreases in unrealized
appreciation/depreciation on foreign currency related transactions.
FUTURES CONTRACTS The Fund may invest in interest rate, financial or stock or
bond index futures contracts subject to certain limitations. The Fund may
invest in futures contracts to manage its exposure to the stock and bond
markets and fluctuations in currency values. Buying futures tends to increase
the Fund's exposure to the underlying instrument while selling futures tends to
decrease the Fund's exposure to the underlying instrument, or hedge other Fund
investments. The Fund will not enter into a transaction involving futures for
speculative purposes. The Fund's risks in using these contracts include changes
in the value of the underlying instruments, non-performance of the
counterparties under the contracts' terms and changes in the liquidity of the
secondary market for the contracts. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange on
which they principally trade.
Upon entering into a futures contract, the Fund is required to pledge to the
broker an amount of cash and/or other assets equal to a certain percentage of
the contract amount, known as initial margin deposit. Subsequent payments,
known as variation margin, are made or received by the Fund each day, depending
on the daily fluctuation in the fair value of the underlying security. The Fund
records an unrealized gain or loss equal to the daily variation margin. Should
market conditions move unexpectedly, the Fund may not achieve the anticipated
benefits of the futures contracts and may incur a loss. The Fund recognizes a
realized gain or loss on the expiration or closing of a futures contract.
17
Notes to Financial Statements December 31 , 2009
- ----------------------------------------------------------------------
OPTIONS The Fund may purchase and write options, subject to certain
limitations. The Fund may invest in options contracts to manage its exposure to
the stock and bond markets and fluctuations in foreign currency values. Writing
puts and buying calls tend to increase the Fund's exposure to the underlying
instrument while buying puts and writing calls tend to decrease the Fund's
exposure to the underlying instrument, or hedge other Fund investments. The
Fund will not enter into a transaction involving options for speculative
purposes. The Fund's risks in using these contracts include changes in the
value of the underlying instruments, non-performance of the counterparties
under the contracts' terms and changes in the liquidity of the secondary market
for the contracts. Options are valued at the last sale price, or if no sales
occurred on that day, at the last quoted bid price.
When the Fund writes an option, the amount of the premium received is recorded
as a liability and is subsequently adjusted to the current fair value of the
option written. Premiums received from writing options that expire unexercised
are treated by the Fund on the expiration date as realized gains from
investments. The difference between the premium and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium is less than the amount paid
for the closing purchase, as a realized loss. When an option is exercised, the
proceeds from the sale of the underlying security or the cost basis of the
securities purchased is adjusted by the original premium received or paid.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts to facilitate transactions in foreign
denominated securities and to manage the Fund's currency exposure. Forward
foreign currency exchange contracts are valued at the mean between the bid and
the offered forward rates as last quoted by a recognized dealer. The aggregate
principal amounts of the contracts are not recorded in the Fund's financial
statements. Such amounts appear under the caption forward foreign currency
contracts in the Schedule of Investments. Fluctuations in the value of the
contracts are recorded in the Statement of Assets and Liabilities as an asset
(or liability) and in the Statement of Operations as unrealized appreciation
(depreciation) until the contracts are closed, when they are recorded as
realized gains or losses on foreign currency related transactions. The Fund's
risks in using these contracts include changes in the value of foreign currency
or the possibility that the counterparties do not perform under the contracts'
terms. When the Fund enters into a forward foreign currency exchange contract,
it is required to segregate cash or liquid securities with its custodian in an
amount equal to the value of the Fund's total assets committed to the
consummation of the forward contract. If the value of the segregated securities
declines, additional cash or securities is segregated so that the value of the
account will equal the amount of the Fund's commitment with respect to the
contract.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for
federal income tax purposes.
The Fund is subject to ASC 740, INCOME TAXES. ASC 740 provides guidance for
financial accounting and reporting for the effects of income taxes that result
from an entity's activities during the year. ASC 740 also provides guidance
regarding how certain uncertain tax positions should be recognized, measured,
presented and disclosed in the financial statements. ASC 740 requires
evaluation of tax positions taken or expected to be taken in the course of
preparing the Funds' tax returns to determine whether the tax positions are
"more likely than not" of being sustained by the applicable tax authority.
There are no adjustments to the Funds' net assets required under ASC 740. The
Funds' 2006, 2007, 2008 and 2009 fiscal years tax returns are still open to
examination by the Federal and applicable state tax authorities."
18
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
At December 31, 2009, information on the tax cost of investments is as follows:
Net Tax
Appreciation/ Undistributed
Net Tax (Depreciation) Undistributed Long-Term Post
Cost of Gross Tax Gross Tax Appreciation/ on Derivatives, Income/ Gains October
Investments for Unrealized Unrealized (Depreciation) Currency and (Accumulated (Accumulated Losses (see
Tax Purposes Appreciation Depreciation on Investments other Net Assets Ordinary Loss) Capital Loss) Detail Below)
- --------------------------------------------------------------------------------------------------------------------
19,565,764 1,893,924 (3,148,019) (1,254,095) 3,709 (84) (5,533,115) (418,505)
As of December 31, 2009, the Fund has capital loss carryovers as indicated
below. Capital loss carryovers are available to offset future realized capital
gains to the extent provided in the Internal Revenue Code and regulations
thereunder. To the extent that these carryover losses are used to offset future
capital gains, it is probable that the gains so offset will not be distributed
to shareholders because they would be taxable as ordinary income.
As of December 31, 2009, the Fund has capital loss carryovers as follows:
Amount Expires
---------------------------------------------------
5,533,115 12/31/2017
Any net capital and currency losses incurred after October 31, within the
Fund's tax year, are deemed to arise on the first day of the Fund's next tax
year if the Fund so elects to defer such losses.
The Fund elected to defer losses incurred after October 31, 2009 as follows:
Capital Currency
---------------------------------------------------
$400,202 $18,303
The tax composition of distributions paid during the years ended December 31,
2009 and December 31, 2008 were as follows:
Long-Term
Ordinary Capital
Income Gains Total
----------------------------------------
2009 $ 294,001 $ -- $ 294,001
2008 1,428,534 15,855,213 17,283,747
DISTRIBUTIONS TO SHAREHOLDERS The Fund declares and pays dividends from net
investment income annually. The Fund declares and pays net realized capital
gains in excess of capital loss carryforwards distributions annually. The
character of income and gains to be distributed is determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences include (but are not limited to) futures,
treatment of realized gains and losses on foreign currency contracts, and
losses deferred due to wash sale transactions. Reclassifications due to
permanent book/tax differences are made to the Fund's capital accounts to
reflect income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. These reclassifications have no
impact on net investment income, realized gains or losses, or the net asset
value of the Fund. The calculation of net investment income per share in the
Financial Highlights table excludes these adjustments.
The reclassifications for the year ended December 31, 2009 were as follows:
Undistributed
(Distribution
in Excess of)
Net Investment Accumulated Paid In
Income Net Realized (Loss) Capital
-------------------------------------------
$5,899 $(250,614) $244,715
INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on
the ex-dividend date, net of applicable withholding taxes, except for certain
foreign corporate actions, which are recorded as soon after ex-dividend date as
such information becomes available. Interest income is recorded on the accrual
basis. All discounts and premiums on bonds are accreted and amortized,
respectively, to call or maturity date, whichever is shorter, using the
effective yield method.
EXPENSES Fund specific expenses are allocated to the Fund that incurs such
expense and pro rata across share classes. Expenses, other than those incurred
by a specific Fund, are allocated pro rata among Funds and share classes. Such
expenses may include custodial fees, legal and accounting fees, printing costs
and registration fees. All expenses of the Fund are paid by GEAM and reimbursed
by the Fund. Certain class specific expenses (such as transfer agency fees or
distribution fees) are allocated to the class that incurs such expense.
DERIVATIVE INSTRUMENTS The Fund is subject to equity price risk, and foreign
currency exchange rate risk in the normal
19
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
course of pursuing their investment objectives. The Fund entered into
derivative transactions for the purpose of hedging against the effects of
changes in the value of portfolio securities due to anticipated changes in
market conditions and to gain market exposure for residual and accumulating
cash positions. A futures contract represents a commitment for the future
purchase or sale of an asset at a specified price on a specified date. Upon
entering into such contracts, the Fund is required to deposit with the broker,
either in cash or securities, an initial margin in an amount equal to a certain
percentage of the contract amount. Subsequent payments (variation margin) are
made or received by the Fund each day, depending on the daily fluctuations in
the value of the contract, and are recorded for financial statement purposes as
unrealized gains or losses by the Fund. Upon entering into such contracts, the
Fund bears the risk of interest or exchange rates or securities prices moving
unexpectedly, in which case, the Fund may not achieve the anticipated benefits
of the futures contracts and may realize a loss. With futures contracts, there
is minimal counterparty credit risk to the Fund since futures contracts are
exchange traded and the exchange's clearinghouse, as counterparty to all traded
futures, guarantees the futures against default.
Shown below are the derivative contracts entered into by the Fund, summarized
by primary risk exposure.
Derivatives not
accounted for as Asset Derivatives December 31, 2009 Liability Derivatives December 31, 2009
hedging ----------------------------------- ---------------------------------------
instruments Location in Notional Location in Notional
under FASB the Statements Value/No. of the Statements Value/No. of
ASC 815 of Assets Contracts Fair of Assets Contracts Fair
and Liabilities Long/(Short) Value and Liabilities Long/(Short) Value
- ---------------------------------------------------------------------------------------------
Equity Contracts Receivables, Net -- -- -- (42,641)/1 (333)*
Assets -
Unrealized
Appreciation/
(Depreciation)
on futures
- ---------------------------------------------------------------------------------------------
*INCLUDES CUMULATIVE APPRECIATION/DEPRECIATION OF FUTURES CONTRACTS AS REPORTED
IN THE SCHEDULE OF INVESTMENTS AND EQUITY SECTION OF THE STATEMENT OF ASSETS
AND LIABILITIES. ONLY THE CURRENT DAY'S VARIATION MARGIN IS REPORTED WITHIN
THE RECEIVABLES AND/OR PAYABLES STATEMENT OF ASSETS AND LIABILITIES.
Shown below are the effects of derivative instruments on the Fund's Statements
of Operations, summarized by primary risk exposure.
Derivatives not Change in Unrealized
accounted Appreciation/
for as hedging Location in the Total Number of Futures/ Realized Gain or (Depreciation)
instruments Statements of Options Contracts (Loss) on Derivatives on Derivatives
under FASB ASC 815 Operations Purchases/(Sold) Recognized in Income Recognized in Income
- ----------------------------------------------------------------------------------------------------------------
Equity Contracts Net realized gain/(loss) 87/(83) (38,813) 4,544
on futures, Increase/
(decrease)
in unrealized
appreciation/
(depreciation) on
futures
- ----------------------------------------------------------------------------------------------------------------
3. LINE OF CREDIT
The Company shares a revolving credit facility of up to $150 million with a
number of its affiliates. The credit facility is with its custodian bank, State
Street Bank and Trust Company. The revolving credit facility requires the
payment of a commitment fee equal to 0.15% per annum on the daily unused
portion of the credit facility, payable quarterly. The portion borne by the
Funds generally is borne proportionally based upon net assets. In addition, the
Company has a $100 million uncommitted, unsecured line of credit with State
Street. Generally, borrowings under the credit facilities would accrue interest
at the Federal Funds
20
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
Rate plus 50 basis points and would be borne by the borrowing Fund. The maximum
amount allowed to be borrowed by any one Fund is the lesser of (i) its
prospectus limitation, or (ii) 20% of its net assets. The credit facilities
were not utilized by the Fund during the fiscal year ended December 31, 2009.
4. AMOUNTS PAID TO AFFILIATES
GEAM, a registered investment adviser, was retained by the Company's Board of
Directors effective May 1, 1997 to act as investment adviser and administrator
of the Fund. Compensation of GEAM for investment advisory and administrative
services is paid monthly based on the average daily net assets of the Fund. The
advisory and administrative fee is stated in the following schedule:
Annualized based on average daily net assets
-----------------------------------------------------
Average Daily Net Assets Advisory
of Fund and Administration Fees
-----------------------------------------------------
First $100 million 1.00%
Next $100 million 0.95%
Over $200 million 0.90%
GEAM has entered into a contractual arrangement with the Company to limit the
management fee charged to the Fund to 0.80% of the average daily net assets of
the Fund (the "Management Fee Waiver Agreement"). Unless terminated or amended,
the Management Fee Waiver Agreement will continue until April 30, 2010. The fee
waiver will terminate automatically if the management agreement terminates. In
addition, the Company may terminate the Management Fee Waiver Agreement without
penalty upon 60 days written notice to GEAM. The Management Fee Waiver
Agreement may be amended by the mutual written consent of the Company and GEAM.
GEAM waives a portion of the Fund's management fee in the amount equal to the
management fee earned by GEAM with respect to the Fund's Investment in the GE
Funds -- GE Money Market Fund.
DISTRIBUTION AND SERVICE (12B-1) FEES The Company has adopted a Distribution
and Service (12b-1) Plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act
with respect to Class 4 shares of the Fund. Under the Plan, the Fund may
compensate GE Investment Distributors, Inc. ("GEID"), a wholly-owned subsidiary
of GEAM and the Fund's principal distributor, for certain sales services
provided by GEID or other broker dealers and investor services provided by GEID
or other service providers relating to the Fund's Class 4 shares, including
services to owners or prospective owners of variable contracts issued by
insurance companies that offer such share class as an investment option. The
amount of compensation paid under the Plan by the Fund's Class 4 shares may not
exceed 0.45% of the average daily net assets of the Fund attributable to such
share class. The Plan continues in effect from year to year for so long as such
continuance is approved annually by the Board of Directors, including by those
directors who are not interested persons of the Company and who have no direct
or indirect financial interest in the operation of the Plan or in any agreement
related to it.
GENPACT performs certain accounting and certain administration services not
provided by GEAM. For the period ending December 31, 2009, $121 was charged to
the Fund.
DIRECTORS' COMPENSATION The Fund pays no compensation to its directors who are
officers or employees of GEAM or its affiliates. Directors who are not such
officers or employees also serve in a similar capacity for other funds advised
by GEAM. Compensation paid to unaffiliated directors are reflected on the
Statement of Operations. These fees are allocated pro rata across all of the
mutual fund platforms and share classes served by the directors, including the
Fund, and are based upon the relative net assets of each fund within such
platforms. (For additional information about directors compensation please
refer to the Statement of Additional Information.)
5. INVESTMENT TRANSACTIONS
PURCHASES AND SALES OF SECURITIES The cost of purchases and the proceeds from
sales of investments, other than short-term securities and options, for the
period ended December 31, 2009 were as follows:
U.S. Government Securities
-----------------------------------------------------
Purchases Sales
-----------------------------------------------------
$-- $--
Other Securities
-----------------------------------------------------
Purchases Sales
-----------------------------------------------------
$7,709,735 $10,646,154
SECURITY LENDING At December 31, 2009 and for the year then ended, the Fund did
not participate in securities lending.
21
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the International Equity Fund, a
series of GE Investments Funds, Inc., as of December 31, 2009, and the related
statement of operations for the year then ended, statements of changes in net
assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years or periods in the five-year period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of December 31, 2009 by
correspondence with the custodian and brokers, or by other appropriate auditing
procedures where replies from brokers were not received. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
International Equity Fund as of December 31, 2009, the results of its
operations, changes in its net assets and financial highlights for each of the
years or periods described above, in conformity with U.S. generally accepted
accounting principles.
/s/ KPMG LLP
Boston, Massachusetts
February 25, 2010
22
Tax Information (unaudited)
- ---------------------------------------------------------------
For the year ended December 31, 2009
SUMMARY
The following funds intend to make an election under Internal Revenue Code
Section 853. The election will allow shareholders to treat their attributable
share of foreign taxes paid by the Funds to be paid by them directly. For the
fiscal year ended December 31, 2009, the total amount of income received by the
Funds from sources within foreign countries and possessions of the United
States and the amount of taxes paid by the Funds follows:
TOTAL FOREIGN TOTAL FOREIGN
FUND NAME SOURCE INCOME TAXES PAID
- ------------------------------------------------------------------------------------
GE Investments Funds, Inc. -- International Equity Fund $562,819 $57,227
23
Advisory and Administrative Agreement Renewal (unaudited)
- ---------------------------------------------------------------
The Board of Directors of the GE Investments Funds, Inc. (the "Board"),
including the independent Board members, considered and all those that were
present unanimously approved the continuance of the Fund's Investment Advisory
and Administration Agreement with GE Asset Management Incorporated ("GEAM") at
meetings held on December 4 and December 11, 2009.
In considering whether to approve the Fund's investment advisory agreement, the
Board members considered and discussed a substantial amount of information and
analysis provided, at the Board's request, by GEAM. The Board members also
considered detailed information regarding performance and expenses of other
investment companies with similar investment objectives and sizes, which was
prepared by independent third party providers, Lipper Analytical Services Inc.
("Lipper") and Morningstar, Inc. ("Morningstar"). The Board members reviewed
the fees charged by GEAM for other mutual funds and investment products other
than mutual funds that employ the same investment strategy as the Fund. The
Board had the opportunity to ask questions and request additional information
in connection with its considerations.
Before approving the Fund's advisory agreement, the Board members reviewed the
information provided with management of GEAM and with independent legal
counsel. The Board members also reviewed a memorandum prepared by independent
legal counsel discussing the legal standards for the consideration of the
proposed continuance. The independent Board members discussed the proposed
continuance in detail during a private session with their independent legal
counsel at which no representatives of GEAM were present. The independent Board
members and their independent legal counsel requested, and received and
considered, additional information from GEAM following these sessions.
In advance of the meetings, and in response to their request, the Board members
received from GEAM written responses to their inquiries, which included
substantial exhibits and other materials related to GEAM's business and the
services it provides to the Fund. The Board members took into account their
multi-year experience as Board members and particularly their consideration of
types of agreements in recent years. The information was presented in a manner
to facilitate comparison to prior periods and to reflect certain enhancements.
To focus their review, the Board members asked GEAM management, in its oral
presentation, to highlight material differences from the information presented
in recent years.
During the meetings, the Board members had an opportunity to discuss this
information with GEAM managers, including senior executives, representatives
from the legal, compliance and finance departments, and investment personnel.
The Board members posed questions to these representatives and engaged in
substantive discussions with them concerning GEAM's investment process.
In reaching their determination relating to continuance of the Fund's
investment advisory agreement, the Board members considered all factors that
they deemed relevant, including the factors discussed below. In their
deliberations, the Board members did not identify any particular information
that was all-important or controlling, and each Board member may have
attributed different weights to the various factors. In particular, the Board
members focused on the following:
THE NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED.
The Board members reviewed the services provided by GEAM, taking into account
their extensive past experiences with GEAM. They focused on the favorable
attributes of GEAM, including (i) an investment philosophy oriented toward
long-term performance; (ii) effective processes used for selecting investments
and brokers; (iii) effective processes used for providing Fund administration,
including controllership and compliance functions and oversight of the
performance of other companies that provide services to the Fund; (iv) highly
skilled professionals including analysts, research professionals, traders and
portfolio managers with a depth of experience involving the types of Funds they
oversee; (v) access to significant technological resources from which the Fund
may benefit; and (vi) a favorable history and reputation. The Board members
discussed with senior officers of GEAM the personnel changes made, and proposed
to be made, by GEAM. The Board members noted that the Fund represents only a
small portion of the assets managed by GEAM, but benefits from a full array of
services and resources provided by GEAM.
In light of these discussions, the Board, including the independent Board
members, concluded that GEAM's services continue to be satisfactory.
INVESTMENT PERFORMANCE OF THE FUND.
The Board members considered the investment performance of the Fund for various
periods. The Board
24
Advisory and Administrative Agreement Renewal (unaudited)
- ---------------------------------------------------------------
members reviewed detailed comparisons of the performance of the Fund with the
relevant securities indices and peer groupings of mutual funds prepared by
Lipper and Morningstar with respect to various periods. The Board members also
engaged in detailed discussions with GEAM management about its investment
process and performance results. These discussions focused on the Fund's
investment objective, GEAM's asset allocation process, the number and
experience of portfolio management and supporting research personnel, the
investment style and approach employed, the likely market cycles for the
investment style and relative underperformance in certain periods. The Board
members discussed GEAM's investment approach with respect to the Fund, and that
the performance of the Fund is consistent with GEAM's articulated long-term
approach and overall investment philosophy.
The Board, including the independent Board members, concluded that the Fund's
performance was acceptable overall taking into consideration the factors
discussed above.
COST OF THE SERVICES PROVIDED AND PROFITS REALIZED FROM THE RELATIONSHIP WITH
THE FUND.
The Board members considered the fees paid to GEAM by the Fund and the cost of
the services provided to the Fund by GEAM. The Board members reviewed the
information they had requested from GEAM concerning its profitability. The
Board members considered the profit margin information for GEAM's investment
company business as a whole, as well as GEAM's profitability data for the Fund.
In this regard, the Board members considered the management fee waiver
agreement between the Fund and GEAM, pursuant to which GEAM has waived 20 basis
points of its management fee and that this waiver continues through April 30,
2010. The Board members reviewed GEAM's assumptions and the methods of cost
allocation used by GEAM in preparing Fund-specific profitability data. The
Board members also discussed with GEAM the basis for its belief that the
methods of allocation used were reasonable for each area of its business.
Information was presented regarding the financial condition of GEAM for various
past periods. The Board members noted and discussed the additional services
provided by GEAM to the Fund compared to other investment products managed by
GEAM, and were provided a study conducted by the Investment Company Institute
that discusses and compares advisory fees and services for mutual funds and
institutional separate accounts. The Board members determined that GEAM should
be entitled to earn a reasonable level of profits for the services it provides
to the Fund. The Board members also recognized that GEAM had made significant
investments in its business and had not fully recovered the sums invested. The
Board also considered that, in the face of overall declining assets and
revenues over the course of the past year, GEAM continues to make a substantial
investment in fulfilling its obligations to the Fund and supporting its
Fund-related activities.
Based on their review, the Board, including the independent Board members,
concluded that they were satisfied that the level of profitability achieved by
GEAM from its relationship with the Fund was not unreasonable or excessive.
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS AND
WHETHER FEE LEVELS WOULD REFLECT SUCH ECONOMIES OF SCALE.
Although the Board noted that the Fund did not experience significant growth in
assets over the past year, the Board members considered the extent to which
economies of scale would be realized as the Fund grows, and whether fee levels
reflect these economies of scale for the benefit of Fund investors.
The Board members considered the substantial infrastructure investments that
GEAM has made with respect to its operations and its commitment to continue
investing resources to enhance services to Fund shareholders. The Board members
recognized the benefits to the Fund of GEAM's past investment in its operations
through the expenditure of sums to support its substantial infrastructure, and
that, with respect to all GEAM managed mutual funds, GEAM has not yet fully
recouped that investment. The Board members reviewed the applicable advisory
fee breakpoints for the Fund. They recognized the economies of scale benefits
that would be derived by the Fund as a result of the breakpoint fee structure
in the event that average daily net assets exceed $100 million. The Board
members also recognized the benefits to the Fund of being able to leverage a
favorable cost structure achieved with respect to the Fund's other operating
expenses as a result of GEAM's large overall base of assets under management
and its vendor management practices.
25
Advisory and Administrative Agreement Renewal (unaudited)
- ---------------------------------------------------------------
COMPARISON OF SERVICES TO BE RENDERED AND FEES TO BE PAID.
The Board members discussed the services provided to the Fund by GEAM, and the
fees charged for those services. The Board members reviewed information
concerning the fee and expense ratios for the Fund, and comparative information
with respect to similar products. They reviewed the Fund's figures, which,
absent consideration of the management fee waiver, exceeded the Lipper peer
group average, but which were within the applicable peer group range when such
waiver was incorporated. They also considered the Fund's relatively small asset
size, noting that the Fund's effective management fee would decline as assets
grow due to the breakpoints in the management fee schedule. In light of the
foregoing, the Board, including the independent Board members, determined that
the advisory fees were reasonable in relation to the services provided to the
Fund.
FALL-OUT BENEFITS.
The Board members considered other actual and potential financial benefits that
GEAM may derive from its relationship with the Fund, including, to the extent
applicable, soft dollar commission benefits generated through Fund portfolio
transactions. The Board members noted, however, that the Fund benefits from the
vast array of resources available through GEAM, and that the Fund represents
only a small portion of the assets managed by GEAM.
CONCLUSION.
No single factor was determinative to the Board's decision. Based on their
discussion and such other matters as were deemed relevant, the Board, including
the independent Board members, concluded that renewal of the advisory agreement
was in the best interests of the Fund and its shareholders.
26
Additional Information (unaudited)
- ---------------------------------------------------------------
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS:
The business and affairs of the Company are managed under the direction of the
Company's Board of Directors. Information pertaining to the Directors and
officers of the Company is set forth below.
INTERESTED DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
MICHAEL J. COSGROVE
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
POSITION(S) HELD WITH FUND Chairman of the Board and President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS President and Chief Executive
Officer - Mutual Funds and Intermediary Business since March 2007; Executive
Vice President of GEAM from February 1997 to March 2007; Director of GEAM since
1988; Vice President, GE Capital Corporation, an indirect wholly-owned
subsidiary of GE, since December 1999; Executive Vice President - Sales and
Marketing of GEAM, a wholly-owned subsidiary of GE that is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, from
March 1993 to March 2007.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 51
OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE
Funds since 1993, and GE Institutional Funds since its inception; Trustee of
General Electric Savings & Security Trust, General Electric S&S Income Fund,
General Electric S&S Program Mutual Fund ("GE Savings & Security Funds"), Elfun
Funds, General Electric Insurance Plan Trust, General Relief Loan Fund, and
General Electric Pension Trust since 1988; Trustee of Fordham University since
2002; Trustee of GE Volunteers since 1993; Director, GE Asset Management
(Ireland) since February 1999; Director, GE Asset Management Funds Plc., GE
Asset Canada Company, and GE Asset Management Limited since 1998.
- --------------------------------------------------------------------------------
MATTHEW J. SIMPSON
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 48
POSITION(S) HELD WITH FUND Director and Executive Vice President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 2 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President, General
Counsel and Secretary of GEAM since July 2007; Senior Vice President and
General Counsel - Marketing and Client Services (formerly Asset Management
Services), at GEAM and Senior Vice President and General Counsel of GEAMS from
February 1997 to June 2007; Vice President and Associate General Counsel of
GEAM from October 1992 to February 1997; Secretary of Fund from 1997 to June
2007; Vice President of Fund from September 2003 to June 2007; Vice President
of GE Institutional Funds from September 2003 to June 2007; Secretary of GE
Institutional Funds and GE LifeStyle Funds from 1997 to June 2007; Vice
President of Elfun Funds and GE Savings & Security Funds from October 2003 to
June 2007; Assistant Secretary of Elfun Funds and GE Savings & Security Funds
from 1998 to June 2007.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 51
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds, GE Institutional
Funds, Elfun Funds and GE Savings & Security Funds since July 2007.
27
Additional Information (unaudited)
- ---------------------------------------------------------------
- --------------------------------------------------------------------------------
SCOTT H. RHODES
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 49
POSITION(S) HELD WITH FUND Treasurer
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 3 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS GEAM Mutual Funds Operations
Manager since September 2005; Treasurer of GE Institutional Funds, GE LifeStyle
Funds and GE Investments Funds since November 2005 and Elfun Funds and GE
Savings & Security Funds since September 2005; from August 2004 to September
2005 Vice President, U.S. Trust Company, N.A. and Assistant Treasurer of
Excelsior Funds, Inc., Excelsior Funds Trust, and Excelsior Tax Exempt Funds,
Inc.; from January 2004 to August 2004, Vice President BlackRock Financial
Management, Inc.; from December 1996 to November 2003, Controller - Mutual
Funds, American Skandia Investment Services, Inc. and Assistant Treasurer of
American Skandia Trust and American Skandia Advisor Funds, Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
JEANNE M. LAPORTA
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 44
POSITION(S) HELD WITH FUND Vice President and Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 5 years (Vice President); 3 years (Secretary)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Senior Vice President and Deputy
General Counsel at GE Asset Management since October 2007; Vice President and
Associate General Counsel - Marketing and Client Services (formerly Asset
Management Services) at GEAM from May 1997 to October 2007; Vice President and
Assistant Secretary of GE Funds and GE Institutional Funds from September 2003
to July 2007; Vice President and Secretary of GE Funds and GE Institutional
Funds since July 2007; Vice President and Assistant Secretary of Elfun Funds
and GE Savings & Security Funds since October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
28
Additional Information (unaudited)
- ---------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 63
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS General Partner, NGN Capital LLC
since 2006; Managing Director, Vice President of Walden Capital Management
since 1996.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, GE
Institutional Funds since its inception; Trustee of Fordham University from
1989 to 1995 and 2001 to 2007 and Trustee Emeritus since 2007; Trustee of Neuro
Science Research Institute since 1986; Trustee of Gregorian University
Foundation from 1992 to 2007; Director of Artes medical from 2006 to 2008.
- --------------------------------------------------------------------------------
WILLIAM J. LUCAS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 61
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Treasurer of
Fairfield University since 1983.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds since its inception.
- --------------------------------------------------------------------------------
ROBERT P. QUINN
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 74
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon
Brothers Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds since its inception; Trustee, St. Francis Hospital Corp.
- --------------------------------------------------------------------------------
The Statement of Additional Information for the Fund includes additional
information about the Directors and Officers and is available, without charge,
upon request by calling 1-800-493-3042.
29
Investment Team
- ----------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
GE Asset Management Incorporated
BOARD OF DIRECTORS
Michael J. Cosgrove, CHAIRMAN
John R. Costantino
William J. Lucas
Robert P. Quinn Matthew J. Simpson
SECRETARY
Jeanne M. LaPorta
ASSISTANT SECRETARIES
Joseph A. Carucci
Joon Won Choe
Kimberley Costello
Michelle Matzelle
TREASURER
Scott H. Rhodes
ASSISTANT TREASURERS
Scott R. Fuchs
Christopher M. Isaacs
DISTRIBUTOR
GE Investment Distributors, Inc.
Member FINRA and SIPC
COUNSEL
Sutherland, Asbill & Brennan, LLP
CUSTODIAN
State Street Bank & Trust Company
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
KPMG LLP
OFFICERS OF THE INVESTMENT ADVISER
James W. Ireland, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Cheryl H.Beacock, SENIOR VICE PRESIDENT, HUMAN RESOURCES
Daniel O. Colao, EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER
Michael J. Cosgrove, PRESIDENT AND CHIEF EXECUTIVE OFFICER - MUTUAL FUNDS &
INTERMEDIARY BUSINESS
Paul M. Colonna, PRESIDENT AND CHIEF INVESTMENT OFFICER - FIXED INCOME
INVESTMENTS
Amiel Goldberg, SENIOR VICE PRESIDENT, CHIEF RISK OFFICER
Ralph R. Layman, PRESIDENT AND CHIEF INVESTMENT OFFICER - PUBLIC EQUITY
INVESTMENTS (SINCE JULY 2009)
Maureen B. Mitchell, PRESIDENT - INSTITUTIONAL SALES AND MARKETING (SINCE JULY
2009)
Matthew J. Simpson, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
Judith A. Studer, CHIEF MARKET STRATEGIST (SINCE JULY 2009)
Don W. Torey, PRESIDENT - ALTERNATIVE INVESTMENTS
John J. Walker, EXECUTIVE VICE PRESIDENT, CHIEF OPERATING OFFICER
David Wiederecht, PRESIDENT AND CHIEF INVESTMENT OFFICER - INVESTMENT STRATEGIES
30
INVESTMENT ADVISER
GE ASSET MANAGEMENT INCORPORATED
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
DISTRIBUTOR
GE INVESTMENT DISTRIBUTORS, INC.
MEMBER FINRA AND SIPC
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission for the first and third quarters of each
fiscal year on Form N-Q. The Fund's Forms N-Q, as well as a description of
the policies and procedures that the Fund uses to determine how to vote
proxies (if any) relating to portfolio securities is available without
charge (i) upon request, by calling 1-800-493-3042; (ii) on the Fund's
website at http://www.geam.com; and (iii) on the Commission's website at
http://www.sec.gov. The Fund's Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC--information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to
portfolio securities during the most recently disclosed 12-month period
ended June 30 is available without charge (i) through the Fund's website at
http://www.geam.com; and (ii) on the Commission's website at
http://www.sec.gov.
[LOGO] GE
GE Investments Funds, Inc.
Mid-Cap Equity Fund
Annual Report
December 31, 2009
[LOGO] GE
GE Investments Funds, Inc.
Mid-Cap Equity Fund Contents
- ------------------------------------------------------------
NOTES TO PERFORMANCE.................................... 1
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS.............. 2
NOTES TO SCHEDULE OF INVESTMENTS........................ 9
FINANCIAL STATEMENTS
Financial Highlights................................. 10
Statement of Assets and Liabilities.................. 11
Statement of Operations.............................. 12
Statements of Changes in Net Assets.................. 13
Notes to Financial Statements........................ 14
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. 22
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL........... 23
ADDITIONAL INFORMATION.................................. 26
INVESTMENT TEAM......................................... 29
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
Notes to Performance December 31, 2009
- ---------------------------------------------------------------------
Information on the following performance pages relating to the GE Investments
Mid-Cap Equity Fund one year total return and Schedule of Investments is
audited. All other information, including the portfolio manager Q&A pages, is
unaudited.
Total returns take into account changes in share price and assume reinvestment
of all dividends and capital gains distributions, if any. Total returns shown
are net of Fund expenses but do not reflect fees and charges associated with
the variable contracts such as administrative fees, account charges and
surrender charges, which, if reflected, would reduce the Fund's total returns
for all periods shown.
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be higher or lower than the performance
data quoted. Periods less than one year are not annualized. Please call
800-493-3042 or visit the Fund's website at http://www.geam.com for the most
recent month-end performance data.
An investment in a Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency. An investment in a Fund is subject to risk, including
possible loss of principal invested.
The Russell* Mid-Cap Index (Russell Mid-Cap Index) is an unmanaged index and
does not reflect the actual cost of investing in the instruments that comprise
the index.
Russell Mid-Cap Index is a market capitalization-weighted index of the smallest
800 companies included in the Russell 1000 Index. The Russell 1000 Index
comprises the 1,000 largest U.S. domiciled companies. The results shown for the
foregoing index assume the reinvestment of net dividends or interest.
The peer universe of the underlying annuity funds used in our peer group
average return calculation is based on the blend of Morningstar peer
categories, as shown. Morningstar is an independent mutual fund rating service.
A Fund's performance may be compared to or ranked within a universe of mutual
funds with investment objectives and policies similar but not necessarily
identical to the Fund's.
(C)2009 Morningstar, Inc. All Rights Reserved. The information contained
herein: (1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is no warranted to be accurate, complete
or timely. Neither Morningstar nor its content providers are responsible for
any damage or losses relating from any use of this information. Past
performance is no guarantee or future results.
- --------------
GE Investment Distributors, Inc., Member of FINRA & SIPC, is the principal
underwriter and distributor of the GE Investment Funds, Inc. and a wholly owned
subsidiary of GE Asset Management Incorporated, the investment adviser of the
Fund.
* Russell Investment Group owns the Russell Index data, including all
applicable trademarks and copyrights, used by GE Asset Management
Incorporated in these materials. Any unauthorized use or redistribution of
such Russell Index data is strictly prohibited. Russell Investment Group is
not responsible for the configuration of this material or for any inaccuracy
in GE Asset Management Incorporated's presentation thereof.
1
Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
[PHOTO] Diane M. Wehner
Diane M. Wehner
The Mid-Cap Equity Fund is managed by Diane M. Wehner. Ms. Wehner is a Senior
Vice President of GE Asset Management and portfolio manager of the Mid-Cap
Equity Fund. She has served in this capacity since September 2004. Before
joining GE Asset Management, Ms. Wehner was a Vice President and senior
portfolio manager from January 1997 to June 2001, and associate portfolio
manager from May 1995 to January 1997, with Benefit Capital Management
Corporation. Ms. Wehner has served as an analyst/portfolio manager in the
investment management industry since 1985.
Q. HOW DID THE MID-CAP EQUITY FUND PERFORM COMPARED TO ITS BENCHMARK AND
MORNINGSTAR PEER GROUP FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2009?
A. For the twelve-month period ended December 31, 2009, the Mid-Cap Equity Fund
returned 41.45% for Class 1 shares and 40.91% for Class 4 shares. The
Russell Mid-Cap Index, the Fund's benchmark, returned 40.48% and the Fund's
Morningstar peer group of 183 US Insurance Mid-Cap Growth funds returned an
average of 41.87% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE?
A. The year began very differently than it ended, both from a macroeconomic and
investor sentiment perspective. Expectations for a deep recession in the
U.S. in the early months of the year quickly reversed as government
intervention and investors' renewed appetite for risk increased liquidity in
the financial markets resulting in the start of a stock market rebound. The
initial move in equities in response to this reversal of sentiment was
fueled by the highly levered, lower quality companies. During this period,
the Fund struggled to outperform given our focus on high quality growth
companies. Ultimately, this discipline was rewarded in the fourth quarter
with investors' renewed focus on companies with stable and growing earnings,
high returns on equity and strong balance sheets. For the year, the Fund,
with its bias towards growth companies, outperformed the Russell Mid-Cap
Index.
Information technology was the best performing sector during the year, given
expectations for a recovery in IT spending, and given these companies'
relatively higher growth rates and stronger balance sheets. The Fund's
overweight in this sector and solid stock selection was additive to
performance. Meanwhile, financial stocks underperformed in 2009 and the Fund
benefitted from an overall underweight in this sector. Specifically, the
Fund had limited exposure to regional banks (-15% return) given our concerns
about deteriorating credit quality and exposure to commercial real estate.
Alternatively, the Fund's overweight in asset managers was additive to
performance as these companies directly benefitted from appreciation in the
financial markets.
Finally, the healthcare sector outperformed the overall market despite
uncertainties surrounding the potential impact of healthcare reform. While
the Fund benefited from its sizable exposure to this sector (15% of
portfolio), performance of some individual stocks suffered from company
specific issues, which more than offset the benefit of being exposed to this
relatively defensive growth industry.
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE?
A. The Fund outperformed during the twelve-month period, largely due to solid
stock selection within the information technology, financials, consumer
staples, and consumer discretionary sectors. Specifically, software company
Rovi (+152%) benefited as investors recognized its strong technology
position and relatively inexpensive valuation. Also, within information
technology, the Fund was positively impacted by Mercadolibre (+216%), a
Latin American e-commerce company which is benefiting from the secular
growth in
2
- --------------------------------------------------------------------------------
[GRAPHIC]
internet adoption in this region. Within the financial sector, CB Richard
Ellis Group (+214) rebounded as the company successfully raised capital and
alleviated concerns about its balance sheet. As the market leader in
commercial real estate services, the company is well positioned to benefit
from increased activity in distressed commercial real estate sales. Within
consumer staples, Pepsi Bottling Group (+64%) outperformed as it was taken
over by PepsiCo for a significant premium. Cheesecake Factory (+114%), a
differentiated upscale casual dining restaurant chain, rose as the company
reported better than expected results in part due to its cost cutting
initiatives and the introduction of lower priced menu choices.
Within the healthcare sector, two companies detracted most from performance.
Psychiatric Solutions (-24%) corrected in response to quality-of-care
concerns at three of its facilities which are currently the subject of state
investigations. Medical technology firm Masimo which develops and sells
pulse oximeters (+2%) underperformed due to concerns about sales growth in
light of lower hospital spending. Within the financial sector, despite
owning two of the strongest insurance companies in the industry, HCC
Insurance (+7%) and Ace Ltd (-2%) both detracted from performance. This is
largely due to investors' cautious stance on the soft pricing in the
Property and Casualty insurance market. Cogent, developer of automated
fingerprint identification systems, (-23%) was negatively impacted by the
loss of a key contract.
Q. WERE THERE ANY SIGNIFICANT CHANGES TO THE FUND OVER THE PERIOD?
A. During the period we increased the Fund's weighting in the financials,
consumer discretionary, and materials sectors, and we reduced our exposure
to consumer staples, and health care sectors. We are focused on investing in
attractively valued companies with strong balance sheets, experienced
management teams, solid earnings prospects, leading market shares, and
superior long-term fundamentals. With an emphasis on growth, we continue to
look to invest in innovative companies that provide prospects for
above-average earnings growth. Therefore, healthcare and information
technology companies represent a meaningful percentage of the Fund's
holdings.
3
Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
Understanding Your Fund's Expenses
As a shareholder of the Fund you incur ongoing expenses, which include
portfolio management fees, professional fees, administrative fees and other
Fund expenses. The following example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors during the period. The information in the
following table is based on an investment of $1,000, which is invested at the
beginning of the period and held for the entire six-month period ended
December 31, 2009.
ACTUAL EXPENSES
The first section of the table provides information about actual account values
and actual expenses. You may use the information in this section, together with
the amount you invested, to estimate the expenses that you paid over the
period. To do so, simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number given for your class under the heading
"Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and
an assumed rate of return of 5% per year before expenses, which is not the
Fund's actual return. You may use this information to compare the ongoing costs
of investing in the Fund and other funds. To do so, compare this 5%
hypothetical example with the 5% hypothetical examples that appear in the
shareholders reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2009 - DECEMBER 31, 2009
- ----------------------------------------------------------------------------------------
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID
BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) DURING THE PERIOD ($)*
- ----------------------------------------------------------------------------------------
ACTUAL FUND RETURN**
- ----------------------------------------------------------------------------------------
Class 1 $1,000.00 $1,229.46 4.50
Class 4 $1,000.00 $1,225.99 6.73
- ----------------------------------------------------------------------------------------
HYPOTHETICAL 5% RETURN (2.5% FOR THE PERIOD)
- ----------------------------------------------------------------------------------------
Class 1 $1,000.00 $1,020.96 4.08
Class 4 $1,000.00 $1,018.98 6.11
- ----------------------------------------------------------------------------------------
*Expenses are equal to the Fund's annualized expense ratio of 0.80% for Class 1
Shares and 1.20% for Class 4 Shares (for the period July 1, 2009--December 31,
2009), multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period)
**Actual Fund Returns for the six-month period ended December 31, 2009 were as
follows: 22.95% for Class 1 shares, and 22.60% for Class 4 shares.
4
Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
CHANGE IN VALUE OF A $10,000 INVESTMENT
CLASS 1 SHARES
- --------------------------------------------------------------------------------
[CHART]
GEI Mid-Cap Equity Russell Midcap Index
------------------ --------------------
Dec 31, 1999 10,000.00 10,000.00
Dec 1, 2000 10,828.83 10,825.78
Dec 1, 2001 10,864.12 10,214.84
Dec 1, 2002 9,368.71 8,562.59
Dec 1, 2003 12,454.62 11,995.80
Dec 1, 2004 14,450.21 14,415.30
Dec 1, 2005 16,146.60 16,238.97
Dec 1, 2006 17,502.68 18,721.86
Dec 1, 2007 19,708.89 19,773.01
Dec 1, 2008 12,255.48 11,574.63
Dec 1, 2009 17,335.00 16,260.51
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 2009
- --------------------------------------------------------------------------------
CLASS 1 SHARES (Inception date: 5/1//97)
- --------------------------------------------------------------------------------
ONE FIVE TEN ENDING VALUE OF A
YEAR YEAR YEAR $10,000 INVESTMENT
-----------------------------------------------------------------------
Mid-Cap Equity Fund 41.45% 3.71% 5.66% $17,335
-----------------------------------------------------------------------
Russell Midcap Index 40.48% 2.44% 4.98% $16,261
-----------------------------------------------------------------------
Morningstar peer group average* 41.87% 1.66% -0.97%
-----------------------------------------------------------------------
CLASS 4 SHARES
- --------------------------------------------------------------------------------
[CHART]
GEI Mid-Cap Equity Russell Midcap Index
------------------ --------------------
5/1/2008 10,000.00 10,000.00
Jun 1, 2008 9,596.44 9,617.28
Sep 1, 2008 8,528.19 8,375.36
Dec 1, 2008 6,364.12 6,091.02
Mar 1, 2009 6,224.85 5,544.38
Jun 1, 2009 7,314.80 6,697.43
Sep 1, 2009 8,416.86 8,078.46
Dec 1, 2009 8,967.90 8,556.91
- --------------------------------------------------------------------------------
TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 2009
- --------------------------------------------------------------------------------
CLASS 4 SHARES (Inception date: 5/1/08)
- --------------------------------------------------------------------------------
ONE SINCE ENDING VALUE OF A
YEAR INCEPTION $10,000 INVESTMENT
---------------------------------------------------------------------
Mid-Cap Equity Fund 40.91% -6.31% $8,968
---------------------------------------------------------------------
Russell Midcap Index 40.48% -8.92% $8,557
---------------------------------------------------------------------
Morningstar peer group average** 41.87%
---------------------------------------------------------------------
INVESTMENT PROFILE [GRAPHIC]
A mutual fund designed for investors
who seek long-term growth of capital
and future income by investing at
least 80% of its net assets in common
and preferred stocks and other types
of equity securities of mid-cap
companies under normal circumstances.
The Fund invests primarily in mid-cap
companies that the portfolio manager
believes are undervalued by the
market and have above-average growth
potential.
PORTFOLIO COMPOSITION AS OF DECEMBER 31, 2009
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $92,494 (in thousands)
[CHART]
Information Technology 20.5%
Consumer Discretionary 15.3%
Financials 14.4%
Healthcare 13.2%
Industrials 8.8%
Energy 8.5%
Utilities 6.6%
Materials 4.5%
Consumer Staples 4.4%
Telecommunication Services 3.4%
Short-Term 0.4%
Other Investments 0.0%*
TOP TEN LARGEST HOLDINGS
AS OF DECEMBER 31, 2009
as a % of Market Value
-----------------------------------------
Rovi Corp. 3.55%
-----------------------------------------
HCC Insurance Holdings, Inc. 2.79%
-----------------------------------------
ITC Holdings Corp. 2.27%
-----------------------------------------
Corrections Corporation of America 2.24%
-----------------------------------------
Southwestern Energy Co. 2.23%
-----------------------------------------
Marvell Technology Group Ltd. 2.20%
-----------------------------------------
Masimo Corp. 2.05%
-----------------------------------------
Synaptics Inc. 1.87%
-----------------------------------------
Thermo Fisher Scientific, Inc. 1.82%
-----------------------------------------
Harsco Corp. 1.79%
-----------------------------------------
* Morningstar performance comparisons are based on average annual total returns
for the one year, five-year, and ten-year periods indicated in the Mid-Cap
Growth peer group consisting of 183, 150 and 70 underlying annuity funds,
respectively.
**Morningstar performance comparisons are based on average annual total returns
for the one year period indicated in the Mid-Cap Growth peer group consisting
of 183 underlying annuity funds.
***Less than 0.01%.
See Notes to Performance on page 1 for further information, including an
explanation of Morningstar peer categories.
Past performance does not predict future performance and the graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
5
MID-CAP EQUITY FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
MID-CAP EQUITY FUND
NUMBER
OF SHARES VALUE
COMMON STOCK -- 99.7% +
------------------------------------------------------------------
AEROSPACE & DEFENSE -- 3.7%
Alliant Techsystems, Inc........... 18,741 $ 1,654,268 /(a,c)/
Hexcel Corp........................ 57,471 745,974 /(a)/
ITT Corp........................... 20,380 1,013,701
3,413,943
BIOTECHNOLOGY -- 1.4%
Vertex Pharmaceuticals Inc......... 31,013 1,328,907 /(a)/
CAPITAL MARKETS -- 3.1%
Affiliated Managers Group Inc...... 23,227 1,564,338 /(a)/
Invesco Ltd........................ 54,083 1,270,410
2,834,748
CHEMICALS -- 3.7%
Intrepid Potash, Inc............... 34,923 1,018,704 /(a)/
Monsanto Co........................ 12,457 1,018,360 /(c)/
Praxair, Inc....................... 17,660 1,418,275 /(c)/
3,455,339
COMMERCIAL BANKS -- 1.3%
Regions Financial Corp............. 97,780 517,256
SunTrust Banks, Inc................ 23,897 484,870
Zions Bancorporation............... 12,341 158,335
1,160,461
COMMERCIAL SERVICES & SUPPLIES -- 2.8%
Corrections Corporation of America. 84,296 2,069,467 /(a)/
Stericycle, Inc.................... 9,339 515,233 /(a)/
2,584,700
COMMUNICATIONS EQUIPMENT -- 1.5%
Juniper Networks, Inc.............. 54,057 1,441,700 /(a)/
COMPUTERS & PERIPHERALS -- 1.9%
Synaptics Inc...................... 56,311 1,725,932 /(a)/
DIVERSIFIED FINANCIAL SERVICES -- 1.4%
CME Group Inc...................... 2,109 708,519
MSCI Inc. (Class A)................ 17,881 568,616 /(a)/
1,277,135
ELECTRIC UTILITIES -- 3.7%
ITC Holdings Corp.................. 40,319 2,100,217 /(c)/
Northeast Utilities................ 51,550 1,329,475
3,429,692
NUMBER
OF SHARES VALUE
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 0.8%
Cogent, Inc............................ 72,487 $ 753,140 /(a)/
ENERGY EQUIPMENT & SERVICES -- 3.2%
Dresser-Rand Group Inc................. 35,912 1,135,178 /(a)/
Noble Corp............................. 28,016 1,140,251
Tesco Corp............................. 52,735 680,809 /(a)/
2,956,238
FOOD PRODUCTS -- 2.4%
McCormick & Company Inc................ 34,990 1,264,189 /(c)/
Sara Lee Corp.......................... 76,906 936,715
2,200,904
GAS UTILITIES -- 0.8%
EQT CORP............................... 15,930 699,646
HEALTHCARE EQUIPMENT & SUPPLIES -- 4.0%
DENTSPLY International Inc............. 18,436 648,394
Gen-Probe Inc.......................... 19,193 823,380 /(a)/
Hologic, Inc........................... 23,455 340,098 /(a)/
Masimo Corp............................ 62,313 1,895,561 /(a,c)/
3,707,433
HEALTHCARE PROVIDERS & SERVICES -- 1.7%
Catalyst Health Solutions, Inc......... 36,660 1,336,990 /(a)/
Psychiatric Solutions, Inc............. 12,704 268,563 /(a)/
1,605,553
HOTELS RESTAURANTS & LEISURE -- 2.4%
Marriott International, Inc. (Class A). 11,066 301,548
Penn National Gaming, Inc.............. 36,963 1,004,654 /(a)/
The Cheesecake Factory Inc............. 43,153 931,673 /(a)/
2,237,875
HOUSEHOLD DURABLES -- 0.6%
MDC Holdings, Inc...................... 17,579 545,652
INDUSTRIAL CONGLOMERATES -- 0.6%
McDermott International, Inc........... 21,208 509,204 /(a)/
INSURANCE -- 4.6%
ACE Ltd................................ 32,785 1,652,364
HCC Insurance Holdings, Inc............ 92,169 2,577,967 /(c)/
4,230,331
INTERNET SOFTWARE & SERVICES -- 2.5%
Baidu, Inc ADR......................... 1,956 804,366 /(a)/
Equinix, Inc........................... 3,794 402,733 /(a)/
MercadoLibre, Inc...................... 21,708 1,125,994 /(a)/
2,333,093
See Notes to Schedule of Investments on page 9 and Notes to Financial
Statements on page 14.
6
MID-CAP EQUITY FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
NUMBER
OF SHARES VALUE
IT SERVICES -- 3.3%
Affiliated Computer Services, Inc.
(Class A)........................... 23,251 $ 1,387,852 /(a)/
Cybersource Corp..................... 38,663 777,513 /(a)/
DST Systems, Inc..................... 11,042 480,879 /(a)/
Telvent GIT S.A...................... 10,837 422,426
3,068,670
LIFE SCIENCES TOOLS & SERVICES -- 6.0%
Covance Inc.......................... 28,559 1,558,465 /(a)/
Illumina, Inc........................ 33,913 1,039,433 /(a)/
Mettler-Toledo International, Inc.... 12,189 1,279,723 /(a,c)/
Thermo Fisher Scientific, Inc........ 35,259 1,681,502 /(a,c)/
5,559,123
MACHINERY -- 1.8%
Harsco Corp.......................... 51,463 1,658,652
MEDIA -- 3.5%
DIRECTV (Class A).................... 24,877 829,648 /(a)/
Focus Media Holding Ltd. ADR......... 28,919 458,366 /(a)/
Liberty Global, Inc. (Series C)...... 32,331 706,432 /(a)/
Regal Entertainment Group (Class A).. 85,409 1,233,306 /(c)/
3,227,752
METALS & MINING -- 0.7%
Freeport-McMoRan Copper &
Gold Inc............................ 8,399 674,356 /(a)/
MULTILINE RETAIL -- 2.1%
Dollar General Corp.................. 38,530 864,228 /(a)/
Kohl's Corp.......................... 19,937 1,075,202 /(a)/
1,939,430
MULTI-UTILITIES -- 0.9%
SCANA Corp........................... 21,366 805,071
OIL, GAS & CONSUMABLE FUELS -- 4.1%
Marathon Oil Corp.................... 27,234 850,246
Peabody Energy Corp.................. 18,649 843,121
Southwestern Energy Co............... 42,871 2,066,382 /(a,c)/
3,759,749
PERSONAL PRODUCTS -- 2.0%
Alberto-Culver Co.................... 33,631 985,052
Mead Johnson Nutrition Co. (Class A). 19,409 848,173 /(a)/
1,833,225
PHARMACEUTICALS -- 0.0%*
Sinopharm Group Co................... 3,852 13,686 /(a)/
PROFESSIONAL SERVICES -- 1.2%
HIS, Inc. (Class A).................. 20,945 1,147,995 /(a)/
NUMBER
OF SHARES VALUE
REAL ESTATE INVESTMENT TRUSTS (REIT'S) -- 1.2%
Douglas Emmett, Inc. (REIT)............ 38,758 $ 552,302
SL Green Realty Corp. (REIT)........... 11,536 579,569
1,131,871
REAL ESTATE MANAGEMENT & DEVELOPMENT -- 1.8%
CB Richard Ellis Group, Inc. (Class A). 119,490 1,621,479 /(a,c)/
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 3.8%
Hittite Microwave Corp................. 37,215 1,516,511 /(a)/
Marvell Technology Group Ltd........... 97,880 2,031,010 /(a)/
3,547,521
SOFTWARE -- 7.8%
Activision Blizzard, Inc............... 133,335 1,481,352 /(a)/
Blackboard Inc......................... 22,717 1,031,125 /(a)/
Citrix Systems, Inc.................... 33,849 1,408,457 /(a)/
Rovi Corp.............................. 102,965 3,281,495 /(a,c)/
7,202,429
SPECIALTY RETAIL -- 3.9%
Bed Bath & Beyond, Inc................. 40,021 1,546,011 /(a,c)/
O'Reilly Automotive, Inc............... 35,162 1,340,375 /(a,c)/
Urban Outfitters, Inc.................. 19,398 678,736 /(a)/
3,565,122
TEXTILES APPAREL & LUXURY GOODS -- 1.6%
Coach, Inc............................. 40,421 1,476,579
THRIFTS & MORTGAGE FINANCE -- 1.2%
People's United Financial, Inc......... 66,630 1,112,721
WATER UTILITIES -- 1.3%
American Water Works
Company, Inc.......................... 53,149 1,191,069
WIRELESS TELECOMMUNICATION SERVICES -- 3.4%
American Tower Corp. (Class A)......... 37,885 1,637,011 /(a)/
NII Holdings, Inc...................... 19,748 663,138 /(a)/
Syniverse Holdings, Inc................ 49,051 857,411 /(a)/
3,157,560
TOTAL COMMON STOCK
(COST $81,149,442).................... 92,125,686
----------------------------------------------------------------------
OTHER INVESTMENTS -- 0.0%*
----------------------------------------------------------------------
GEI Investment Fund
(COST $30,327)........................ 23,048 /(d)/
TOTAL INVESTMENTS IN SECURITIES
(COST $81,179,769).................... 92,148,734
See Notes to Schedule of Investments on page 9 and Notes to Financial
Statements on page 14.
7
MID-CAP EQUITY FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
NUMBER
OF SHARES VALUE
-----------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 0.4%
-----------------------------------------------------------------------
GE Money Market Fund Institutional
Class 0.01%
(COST $344,908)....................... $ 344,908 /(b,e)/
TOTAL INVESTMENTS
(COST $81,524,677).................... 92,493,642
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET -- (0.1)%......................... (110,924)
-----------
NET ASSETS -- 100.0%................... $92,382,718
===========
-----------------------------------------------------------------------
OTHER INFORMATION
-----------------------------------------------------------------------
The GEI Mid-Cap Equity had the following short futures contracts open at
December 31, 2009:
NUMBER CURRENT
EXPIRATION OF NOTIONAL UNREALIZED
DESCRIPTION DATE CONTRACTS VALUE APPRECIATION
------------------------------------------------------------
S&P Midcap 400
Emini Index
Futures March 2010 11 $(797,390) $10,107
See Notes to Schedule of Investments on page 9 and Notes to Financial
Statements on page 14.
8
Notes to Schedules of Investments December 31, 2009
- ---------------------------------------------------------------------
The views expressed in this document reflect our judgment as of the publication
date and are subject to change at any time without notice. The securities cited
may not represent current or future holdings and should not be considered as a
recommendation to purchase or sell a particular security. See the prospectus
for complete descriptions of investment objectives, policies, risks and
permissible investments.
(a)Non-income producing security.
(b)Coupon amount represents effective yield.
(c)At December 31, 2009 , all or a portion of this security was pledged to
cover collateral requirements for futures, options, forward foreign currency
contracts and/or TBA's.
(d)GE Asset Management Incorporated (GEAM) is the investment advisor of the
Fund and also serves as investment advisor of the GEI Investment Fund.
(e)GEAM, the investment adviser of the Fund, also serves as investment adviser
of the GE Funds-GE Money Market Fund.
* Less than 0.1%.
+ Percentages are based on net assets as of December 31, 2009.
Abbreviations:
ADR American Depository Receipt
REIT Real Estate Investment Trust
TBA To be Announced
9
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
MID-CAP EQUITY FUND
-------------------------------------------------------
CLASS 1
------------------------------------------------------
12/31/09 12/31/08 12/31/07 12/31/06 12/31/05
-------- --------- -------- -------- -------- -
INCEPTION DATE -- -- -- -- 5/1/97
Net asset value, beginning of period............. $ 10.50 $ 17.30 $ 18.19 $ 19.22 $ 18.33
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income.......................... 0.09 0.10 0.08 0.23 0.05
Net realized and unrealized gains/(losses) on
investments................................... 4.26 (6.65) 2.23 1.40 2.11
- -------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM
INVESTMENT OPERATIONS........................... 4.35 (6.55) 2.31 1.63 2.16
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.......................... 0.03 0.05 0.07 0.22 0.06
Net realized gains............................. 0.00 0.20 3.13 2.44 1.21
- -------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS.............................. 0.03 0.25 3.20 2.66 1.27
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD................... $ 14.82 $ 10.50 $ 17.30 $ 18.19 $ 19.22
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN /(A)/............................... 41.45% (37.82)% 12.60% 8.40% 11.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)....... $92,374 $ 81,791 $191,339 $199,311 $229,097
Ratios to average net assets:
Net investment income........................ 0.19% 0.29% 0.35% 1.01% 0.24%
Expenses..................................... 0.80%/(b)/ 0.73%/(b)/ 0.70% 0.69% 0.70%
Portfolio turnover rate........................ 24% 49% 65% 29% 27%
-----------------------------
CLASS 4
-----------------------------
12/31/09 12/31/08
-------- ---------
INCEPTION DATE -- 5/1/08
Net asset value, beginning of period............. $ 10.51 $ 16.85
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income.......................... (0.05) (0.01)**
Net realized and unrealized gains/(losses) on
investments................................... 4.35 (6.12)
- -------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM
INVESTMENT OPERATIONS........................... 4.30 (6.13)
- -------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.......................... 0.00 0.01
Net realized gains............................. 0.00 0.20
- -------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS.............................. 0.00 0.21
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD................... $ 14.81 $ 10.51
- -------------------------------------------------------------------------------
TOTAL RETURN /(A)/............................... 40.91% (36.36)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)....... $ 9 $ 6
Ratios to average net assets:
Net investment income........................ (0.22)% (0.05)%*
Expenses..................................... 1.25%/(b)/ 1.18%/(b)/*
Portfolio turnover rate........................ 24% 49%
NOTES TO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(a)Total returns are historical and assume changes in share price, reinvestment
of dividends and capital gains distributions, and do not include the effect
of insurance contract charges.
(b)Reflects GEAM's waiver of a portion of the Fund's management fee in an
amount equal to the management fee earned by GEAM with respect to the Fund's
investment in the GE Funds - GE Money Market Fund. Excluding waiver, the
expense ratios would be unchanged.
* Annualized for periods less than one year.
**Per share values have been calculated using the average share method.
10
Statements of Assets MID-CAP
and Liabilities DECEMBER 31, 2009 EQUITY
FUND
- -------------------------------------------------------------------------------
ASSETS
Investments in securities, at market (cost $81,149,442)......... $92,125,686
Investments in affiliated securities, at market (cost $30,327).. 23,048
Short-term affiliated investments (at amortized cost)........... 344,908
Income receivables.............................................. 66,147
Receivable for fund shares sold................................. 61
Variation margin receivable..................................... 10,120
- -------------------------------------------------------------------------------
TOTAL ASSETS.................................................. 92,569,970
- -------------------------------------------------------------------------------
LIABILITIES
Distribution payable to shareholders............................ 20
Payable for fund shares redeemed................................ 20,734
Payable to GEAM................................................. 50,096
Accrued other expenses.......................................... 116,402
- -------------------------------------------------------------------------------
TOTAL LIABILITIES............................................. 187,252
- -------------------------------------------------------------------------------
NET ASSETS........................................................ $92,382,718
- -------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital paid in................................................. 95,913,401
Undistributed (distribution in excess of) net investment income. 5,029
Accumulated net realized gain (loss)............................ (14,514,784)
Net unrealized appreciation/ (depreciation) on:
Investments................................................... 10,968,965
Futures....................................................... 10,107
- -------------------------------------------------------------------------------
NET ASSETS........................................................ $92,382,718
- -------------------------------------------------------------------------------
CLASS 1:
NET ASSETS........................................................ 92,373,750
Shares outstanding ($0.01 par value; unlimited shares authorized). 6,234,132
Net asset value per share......................................... $14.82
CLASS 4:
NET ASSETS........................................................ 8,968
Shares outstanding ($0.01 par value; unlimited shares authorized). 605
Net asset value per share......................................... $14.81
See Notes to Financial Statements.
11
Statements of Operations MID-CAP
FOR THE YEAR ENDING DECEMBER 31, 2009 EQUITY
FUND
--------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend................................................. $ 742,569
Interest................................................. 60,196
Interest from affliated investments...................... 5,901
--------------------------------------------------------------------------
TOTAL INCOME............................................... 808,666
--------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees......................... 544,971
Distributors Fees (Notes 4)
Class 4................................................ 33
Transfer agent........................................... 17,919
Directors' fees.......................................... 1,570
Custody and accounting expenses.......................... 56,050
Professional fees........................................ 24,849
Registration expenses.................................... 4,758
Other expenses........................................... 22,698
--------------------------------------------------------------------------
TOTAL EXPENSES BEFORE WAIVER AND REIMBURSEMENT............. 672,848
--------------------------------------------------------------------------
Add: Expenses reimbursed by the adviser.................. (3,786)
--------------------------------------------------------------------------
Net expenses............................................. 669,062
--------------------------------------------------------------------------
NET INVESTMENT INCOME...................................... 139,604
--------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments............................................ (7,918,565)
Futures................................................ 58,082
Foreign currency transactions.......................... (1)
INCREASE IN UNREALIZED APPRECIATION/(DEPRECIATION) ON:
Investments............................................ 36,719,566
Futures................................................ 12,279
--------------------------------------------------------------------------
Net realized and unrealized gain on investments.......... 28,871,361
--------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....... $29,010,965
--------------------------------------------------------------------------
See Notes to Financial Statements.
12
Statements of MID-CAP
Changes in Net Assets EQUITY
FUND
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2009 2008
- -----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income................................................................ $ 139,604 $ 389,662
Net realized (loss) on investments, futures and foreign currency transactions......... (7,860,484) (6,321,639)
Net increase (decrease) in unrealized appreciation / (depreciation) on investments,
futures and foreign currency translation............................................ 36,731,845 (61,400,904)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations............................................... 29,010,965 (67,332,881)
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class 1............................................................................. (200,960) (364,388)
Class 4............................................................................. -- (3)
Net realized gains
Class 1............................................................................. -- (1,551,141)
Class 4............................................................................. -- (121)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS..................................................................... (200,960) (1,915,653)
- -----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions..................... 28,810,005 (69,248,534)
- -----------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares
Class 1............................................................................. 1,178,747 4,009,071
Class 4............................................................................. -- 10,000
Value of distributions reinvested
Class 1............................................................................. 200,960 1,915,529
Class 4............................................................................. -- 124
Cost of shares redeemed
Class 1............................................................................. (19,604,175) (46,228,464)
Class 4............................................................................. -- --
- -----------------------------------------------------------------------------------------------------------------------
Net (decrease) from share transactions................................................ (18,224,468) (40,293,740)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS................................................. 10,585,537 (109,542,274)
NET ASSETS
Beginning of period..................................................................... 81,797,181 191,339,455
- -----------------------------------------------------------------------------------------------------------------------
End of period........................................................................... $ 92,382,718 $ 81,797,181
- -----------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF)
NET INVESTMENT INCOME, END OF PERIOD.................................................... $ 5,029 $ 33,730
- -----------------------------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES
CLASS 1
Shares sold............................................................................... 100,537 263,663
Issued for distributions reinvested....................................................... 13,432 186,879
Shares redeemed........................................................................... (1,671,328) (3,717,121)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares.................................................... (1,557,359) (3,266,579)
- -----------------------------------------------------------------------------------------------------------------------
CLASS 4
Shares sold............................................................................... -- 593
Issued for distributions reinvested....................................................... -- 12
Shares redeemed........................................................................... -- --
- -----------------------------------------------------------------------------------------------------------------------
Net increase in fund shares............................................................... -- 605
- -----------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
13
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
1. ORGANIZATION OF THE COMPANY
GE Investments Funds, Inc. (the "Company") was incorporated under the laws of
the Commonwealth of Virginia on May 14, 1984 and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Company is composed of fourteen investment
portfolios (collectively the "Funds"), although only the following eleven are
currently being offered: U.S. Equity Fund, S&P 500 Index Fund, Premier Growth
Equity Fund, Core Value Equity Fund, Mid-Cap Equity Fund (the "Fund"),
Small-Cap Equity Fund, International Equity Fund, Total Return Fund, Income
Fund, Money Market Fund and Real Estate Securities Fund.
Shares of the Funds of the Company are offered only to insurance company
separate accounts that fund certain variable life insurance contracts and
variable annuity contracts. These insurance companies may include insurance
companies affiliated with GE Asset Management Incorporated ("GEAM"), the
investment adviser and administrator of each of the Funds.
The Company offers two share classes (Class 1 and Class 4) of the Fund as
investment options for variable life insurance and variable annuity contracts.
Class 4 shares were first offered on May 1, 2008, and Fund shares outstanding
prior to May 1, 2008 were designated as Class 1 shares. Each share class has
different fees and expenses, and as a result, each share class will have
different share price and performance. Not all variable contracts offer both
share classes of the Fund.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results may differ from
those estimates.
ACCOUNTING CHANGES
The Financial Accounting Standards Board (FASB) issued FASB Accounting
Standards Codification (ASC) effective for financial statements issued for
interim and annual periods ending after September 15, 2009. The ASC is an
aggregation of previously issued authoritative U.S. generally accepted
accounting principles (GAAP) in one comprehensive set of guidance organized by
subject area. In accordance with the ASC, references to previously issued
accounting standards have been replaced by ASC references. Subsequent revisions
to GAAP will be incorporated into the ASC through Accounting Standards Updates
(ASU).
SUBSEQUENT EVENTS
Subsequent events after the balance sheet date through the date that the
financial statements were issued, have been evaluated in the preparation of the
Financial Statement.
The following summarizes the significant accounting policies of the Fund:
SECURITY VALUATION AND TRANSACTIONS
The Fund's portfolio securities are valued generally on the basis of market
quotations. Equity securities generally are valued at the last reported sales
price on the primary market in which they are traded. Portfolio securities
listed on NASDAQ are valued using the NASDAQ Official Closing Price, which may
not necessarily represent the last sale price. If no sales occurred on the
exchange or NASDAQ that day, the portfolio security generally is valued using
the last reported bid price.
Debt securities (other than short-term securities described below) generally
are valued at an evaluated bid as reported by an independent pricing service.
Values obtained from pricing services are based on recent trading activity and
other relevant information which may include market interest rate curves,
referenced credit spreads and estimated prepayment rates where applicable. In
the absence of a reliable price from such a pricing service, debt securities
may be valued based on dealer supplied valuations or quotations. The Fund's
written or purchased options are valued at the last sales price, or if no sales
occurred that day, at the last reported bid price. Short-term investments of
sufficient credit quality with remaining maturities of sixty days or less at
the time of purchase are valued on the basis of amortized cost, which
approximates market value.
All assets and liabilities of the Fund that are initially expressed in foreign
currency values will be converted into U.S. dollars at the WM/Reuters exchange
rate computed at 11:00 a.m., Eastern time.
14
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
If prices are not readily available for a portfolio security, or if it is
believed that a price for a portfolio security does not represent its fair
value, the security may be valued using procedures approved by the Fund's Board
of Directors that are designed to establish its "fair" value.
Foreign securities may be valued with the assistance of an independent fair
value pricing service in circumstances where it is believed that they have been
or would be materially affected by events occurring after the close of the
portfolio security's primary market and before the close of regular trading on
the NYSE. This independent fair value pricing service uses a computerized
system to appraise affected securities and portfolios taking into consideration
various factors and the fair value of such securities may be something other
than the last available quotation or other market price.
GEAM may also separately monitor portfolio securities and, consistent with the
Fund's fair value procedures, apply a different value to a portfolio security
than would be applied had it been priced using market quotations or by an
independent fair value pricing service.
Determining the fair value of securities involves the application of both
subjective and objective considerations. Security values may differ depending
on the methodology used to determine their values, and may differ from the last
quoted sale or closing price. No assurance can be given that use of these fair
value procedures will always better represent the price at which the Fund could
sell the affected portfolio security.
Security transactions are accounted for as of the trade date. Realized gains
and losses on investments sold are recorded on the basis of identified cost for
both financial statement and federal tax purposes.
FAIR VALUE MEASUREMENTS
The Fund adopted ASC 820, Fair Valuation Measurements and Disclosures effective
January 1, 2008. This guidance establishes a new framework for measuring fair
value and expands related disclosures. Broadly, the framework requires fair
value to be determined based on the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction
between market participants. It also establishes a three-level valuation
hierarchy based upon observable and non-observable inputs.
For financial assets and liabilities, fair value is the price the Fund would
receive to sell an asset or pay to transfer a liability in an orderly
transaction with a market participant at the measurement date. In the absence
of active markets for the identical assets or liabilities, such measurements
involve developing assumptions based on market observable data and, in the
absence of such data, internal information that is consistent with what market
participants would use in a hypothetical transaction that occurs at the
measurement date.
Observable inputs reflect market data obtained from independent sources, while
unobservable inputs reflect our market assumptions. Preference is given to
observable inputs. These two types of inputs create the following fair value
hierarchy:
Level 1 -- Quoted prices for identical investments in active markets.
Level 2 -- Quoted prices for similar investments in active markets; quoted
prices for identical or similar investments in markets that are not active;
and model-derived valuations whose inputs are observable or whose
significant value drivers are observable.
Level 3 -- Significant inputs to the valuation model are unobservable.
Policies and procedures are maintained to value investments using the best and
most relevant data available. In addition, GEAM performs periodic reviews of
the methodologies used by independent pricing services including price
validation of individual securities.
The following section describes the valuation methodologies the Fund uses to
measure different financial investments at fair value.
When available, the Fund uses quoted market prices to determine the fair value
of investment securities, and they are included in Level 1. Level 1 securities
primarily include publicly-traded equity securities.
When quoted market prices are unobservable, pricing information is obtained
from an independent pricing vendor. The pricing vendor uses various pricing
models for each asset class that are consistent with what other market
participants would use. The inputs and assumptions to the model of the pricing
vendor are derived from market observable sources including: benchmark yields,
reported trades, broker/dealer quotes, issuer spreads, benchmark securities,
bids, offers, and other market-related data. Since many fixed income securities
do not trade on a daily basis, the methodology of the pricing vendor uses
available
15
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
information as applicable such as benchmark curves, benchmarking of like
securities, sector groupings, and matrix pricing. The pricing vendor considers
all available market observable inputs in determining the evaluation for a
security. Thus, certain securities may not be priced using quoted prices, but
rather determined from market observable information. These investments are
included in Level 2 and primarily comprise our portfolio of corporate fixed
income, and government, mortgage and asset-backed securities. In infrequent
circumstances, pricing vendors may provide the Fund with valuations that are
based on significant unobservable inputs, and in those circumstances the
investment securities are included in Level 3.
The Fund uses non-binding broker quotes as the primary basis for valuation when
there is limited, or no, relevant market activity for a specific investment or
for other investments that share similar characteristics. The Fund has not
adjusted the prices obtained. Investment securities priced using non-binding
broker quotes are included in Level 3. As is the case with the primary pricing
vendor, third-party brokers do not provide access to their proprietary
valuation models, inputs and assumptions. Accordingly, GEAM conducts internal
reviews of pricing for all such investment securities periodically to ensure
reasonableness of valuations used in our financial statements. These reviews
are designed to identify prices that appear stale, those that have changed
significantly from prior valuations, and other anomalies that may indicate that
a price may not be accurate. Based on the information available, GEAM believes
that the fair values provided by the brokers are representative of prices that
would be received to sell the assets at the measurement date (exit prices).
Other financial investments are derivative investments that are not reflected
in Total Investments, such as futures, forwards, swaps, and written options
contracts, which are valued based o the unrealized appreciation/depreciation of
the instrument.
The Fund uses closing prices for derivatives included in Level 1, which are
traded either on exchanges or liquid over-the counter markets. Derivative
assets and liabilities included in Level 2 primarily represent interest rate
swaps, cross-currency swaps and foreign currency and commodity forward and
option contracts. Derivative assets and liabilities included in Level 3
primarily represent interest rate products that contain embedded optionality or
prepayment features.
In January 2010, FASB issued ASU 2010-06, Improving Disclosures about Fair
Value Measurements. ASU 2010-06 will require reporting entities to make new
disclosures about the amounts and reasons for significant transfers in and out
of Level 1 and Level 2 fair value measurements and inputs and valuation
techniques used to measure fair value for both recurring and nonrecurring fair
value measurements that fall in either Level 2 or Level 3, and information on
purchases, sales, issuances, and settlements in the roll forward of activity in
Level 3 fair value measures. The new disclosures are effective for interim and
annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements. Those disclosures are
effect for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. GEAM does not believe the adoption of ASU
2010-06 will materially impact the financial statement amounts.
The following tables present the funds' investments measured at fair value on a
recurring basis at December 31, 2009:
Level 1 Level 2 Level 3 Total
---------------------------------------------------------------------
Investments in Securities+ $92,456,908 $36,734 $-- $92,493,642
Other Financial Instruments+ 10,107 -- -- 10,107
+See Statement of Investments for Industry Classification.
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities. For example, money
market securities are valued using amortized cost, in accordance with the
Investment Company Act of 1940. Generally, amortized cost reflects the current
fair value of a security, but since the value is not obtained from a quoted
price in an active market, such securities are reflected as Level 2. Fair value
determinations are required for securities whose value is affected by a
significant event that will materially affect the value of a domestic or
foreign security and which occurs subsequent to the time of the close of the
principal market on which such domestic or foreign security trades but prior to
the calculation of the Fund's NAV.
16
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
REPURCHASE AGREEMENTS The Fund may engage in repurchase agreement transactions
with respect to instruments that are consistent with the Fund's investment
objectives or policies. The Fund's or a third party custodian takes possession
of the collateral pledged for investments in repurchase agreements on behalf of
the Fund. The Fund values the underlying collateral daily on a mark-to-market
basis to determine that the value, including accrued interest, is at least
equal to 102% of the repurchase price. In the event the seller defaults and the
value of the security declines, or if the seller enters an insolvency
proceeding, realization of the collateral by the Fund may be delayed or limited.
SECURITY LENDING The Fund may loan securities to brokers, dealers, and
financial institutions determined by GEAM to be creditworthy, subject to
certain limitations. The Fund continues to receive the interest and dividends
on the loaned securities during the term of the loan. The loans of securities
are secured by collateral in the form of cash or other liquid assets, which are
segregated and maintained with the custodian in an amount at least equal to
102% of the current market value of the loaned securities. During the term of
the loan, the Fund will record any gain or loss in the market value of its
loaned securities and of securities in which cash collateral is invested. The
Fund will also earn interest, net of any rebate, from securities in which cash
collateral is invested. In the event the counterparty (borrower) does not meet
its contracted obligation to return the securities, the Fund may be exposed to
the risk of loss of reacquiring the loaned securities at prevailing market
prices using the proceeds of the sale of the collateral.
FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the prevailing rates of exchange
on a daily basis (on days the New York Stock Exchange is open). Purchases and
sales of securities, income receipts and expense payments denominated in
foreign currencies are translated into U.S. dollars at the prevailing exchange
rate on the respective dates of such transactions.
The Fund does not isolate the portion of the results of operations resulting
from changes in foreign exchange rates of foreign denominated securities from
the fluctuations arising from changes in the market prices of those securities
during the period. Such fluctuations are included in the net realized or
unrealized gain or loss from investments. Net realized gains or losses on
foreign currency transactions represent net gains or losses on sales and
maturities of foreign currency contracts, disposition of foreign currencies,
the difference between the amount of net investment income and withholding
taxes accrued and the U.S. dollar amount actually received or paid, and gains
or losses between the trade and settlement date on purchases and sales of
securities. Net unrealized foreign exchange gains and losses arising from
changes in the value of other assets and liabilities as a result of changes in
foreign exchange rates are included as increases or decreases in unrealized
appreciation/depreciation on foreign currency related transactions.
FUTURES CONTRACTS The Fund may invest in interest rate, financial or stock or
bond index futures contracts subject to certain limitations. The Fund may
invest in futures contracts to manage its exposure to the stock and bond
markets and fluctuations in currency values. Buying futures tends to increase
the Fund's exposure to the underlying instrument while selling futures tends to
decrease the Fund's exposure to the underlying instrument, or hedge other Fund
investments. The Fund will not enter into a transaction involving futures for
speculative purposes. The Fund's risks in using these contracts include changes
in the value of the underlying instruments, non-performance of the
counterparties under the contracts' terms and changes in the liquidity of the
secondary market for the contracts. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange on
which they principally trade.
Upon entering into a futures contract, the Fund is required to pledge to the
broker an amount of cash and/or other assets equal to a certain percentage of
the contract amount, known as initial margin deposit. Subsequent payments,
known as variation margin, are made or received by the Fund each day, depending
on the daily fluctuation in the fair value of the underlying security. The Fund
records an unrealized gain or loss equal to the daily variation margin. Should
market conditions move unexpectedly, the Fund may not achieve the anticipated
benefits of the futures contracts and may incur a loss. The Fund recognizes a
realized gain or loss on the expiration or closing of a futures contract.
OPTIONS The Fund may purchase and write options, subject to certain
limitations. The Fund may invest in options contracts to manage its exposure to
the stock and bond markets and fluctuations in foreign currency values.
Writing puts and buying calls tend to increase the Fund's exposure to the
underlying instrument while buying puts
17
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
and writing calls tend to decrease the Fund's exposure to the underlying
instrument, or hedge other Fund investments. The Fund will not enter into a
transaction involving options for speculative purposes. The Fund's risks in
using these contracts include changes in the value of the underlying
instruments, non-performance of the counterparties under the contracts' terms
and changes in the liquidity of the secondary market for the contracts. Options
are valued at the last sale price, or if no sales occurred on that day, at the
last quoted bid price.
When the Fund writes an option, the amount of the premium received is recorded
as a liability and is subsequently adjusted to the current fair value of the
option written. Premiums received from writing options that expire unexercised
are treated by the Fund on the expiration date as realized gains from
investments. The difference between the premium and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium is less than the amount paid
for the closing purchase, as a realized loss. When an option is exercised, the
proceeds from the sale of the underlying security or the cost basis of the
securities purchased is adjusted by the original premium received or paid.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders.
Therefore, no provision for federal income tax has been made. The Fund is
treated as a separate taxpayer for federal income tax purposes.
The Fund is subject to ASC 740, Income Taxes. ASC 740 provides guidance for
financial accounting and reporting for the effects of income taxes that result
from an entity's activities during the year. ASC 740 also provides guidance
regarding how certain uncertain tax positions should be recognized, measured,
presented and disclosed in the financial statements. ASC 740 requires
evaluation of tax positions taken or expected to be taken in the course of
preparing the Funds' tax returns to determine whether the tax positions are
"more likely than not" of being sustained by the applicable tax authority.
There are no adjustments to the Funds' net assets required under ASC 740. The
Funds' 2006, 2007, 2008 and 2009 fiscal years tax returns are still open to
examination by the Federal and applicable state tax authorities."
At December 31, 2009, information on the tax cost of investments is as follows:
Net Tax
Appreciation/ Undistributed
Net Tax (Depreciation) on Undistributed Long-Term
Cost of Gross Tax Gross Tax Appreciation/ Derivatives, Income/ Gains Post October
Investments for Unrealized Unrealized (Depreciation) on Currency and (Accumulated (Accumulated Losses (see
Tax Purposes Appreciation Depreciation Investments other Net Assets Ordinary Loss) Capital Loss) Detail Below)
- --------------------------------------------------------------------------------------------------------------------------------
$84,791,839 $17,672,758 $(9,970,955) $7,701,803 $-- $5,029 $(11,237,515) $--
As of December 31, 2009, the Fund has capital loss carryovers as indicated
below.
Amount Expires
----------------------
$2,257,504 12/31/2016
8,980,011 12/31/2017
Capital loss carryovers are available to offset future realized capital gains
to the extent provided in the Internal Revenue Code and regulations thereunder.
To the extent that these carryover losses are used to offset future capital
gains, it is probable that the gains so offset will not be distributed to
shareholders because they would be taxable as ordinary income.
Any net capital and currency losses incurred after October 31, within the
Fund's tax year, are deemed to arise on the first day of the Fund's next tax
year if the Fund so elects to defer such losses.
18
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
The Fund elected to defer losses incurred after October 31, 2009 as follows:
Capital Currency
-----------------
$-- $--
The tax composition of distributions paid during the years ended December 31,
2009 and December 31, 2008 were as follows:
Long-Term
Ordinary Capital
Income Gains Total
------------------------------------
2009 $200,960 $ -- $ 200,960
2008 366,920 1,548,733 1,915,653
DISTRIBUTIONS TO SHAREHOLDERS The Fund declares and pays dividends from net
investment income annually. The Fund declares and pays net realized capital
gains in excess of capital loss carryforwards distributions annually. The
character of income and gains to be distributed is determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences include (but are not limited to) futures,
distributions from Real Estate Investment Trusts (REITS), and losses deferred
due to wash sale transactions. Reclassifications due to permanent book/tax
differences are made to the Fund's capital accounts to reflect income and gains
available for distribution (or available capital loss carryovers) under income
tax regulations. These reclassifications have no impact on net investment
income, realized gains or losses, or the net asset value of the Fund. The
calculation of net investment income per share in the Financial Highlights
table excludes these adjustments.
The reclassifications for the year ended December 31, 2009 were as follows:
Undistributed (Distribution
in Excess of) Net Accumulated Net Realized
Investment Income Gain Paid In Capital
- -------------------------------------------------------------------------------
$32,655 $1 $(32,656)
INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on
the ex-dividend date, net of applicable withholding taxes, except for certain
foreign corporate actions, which are recorded as soon after ex-dividend date as
such information becomes available. Interest income is recorded on the accrual
basis. All discounts and premiums on bonds are accreted and amortized,
respectively, to call or maturity date, whichever is shorter, using the
effective yield method.
EXPENSES Fund specific expenses are allocated to the Fund that incurs such
expense and pro rata across share classes. Expenses, other than those incurred
by a specific Fund, are allocated pro rata among Funds and share classes. Such
expenses may include custodial fees, legal and accounting fees, printing costs
and registration fees. All expenses of the Fund are paid by GEAM and reimbursed
by the Fund. Certain class specific expenses (such as transfer agency fees or
distribution fees) are allocated to the class that incurs such expense.
DERIVATIVE INSTRUMENTS The Fund is subject to equity price risk and foreign
currency exchange rate risk in the normal course of pursuing their investment
objectives. The Fund entered into derivative transactions for the purpose of
hedging against the effects of changes in the value of portfolio securities due
to anticipated changes in market conditions and to gain market exposure for
residual and accumulating cash positions. A futures contract represents a
commitment for the future purchase or sale of an asset at a specified price on
a specified date. Upon entering into such contracts, the Fund is required to
deposit with the broker, either in cash or securities, an initial margin in an
amount equal to a certain percentage of the contract amount. Subsequent
payments (variation margin) are made or received by the Fund each day,
depending on the daily fluctuations in the value of the contract, and are
recorded for financial statement purposes as unrealized gains or losses by the
Fund. Upon entering into such contracts, the Fund bears the risk of interest or
exchange rates or securities prices moving unexpectedly, in which case, the
Fund may not achieve the anticipated benefits of the futures contracts and may
realize a loss. With futures contracts, there is minimal counterparty credit
risk to the Fund since futures contracts are exchange traded and the exchange's
clearinghouse, as counterparty to all traded futures, guarantees the futures
against default.
19
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
Shown below are the derivative contracts entered into by the Fund, summarized
by primary risk exposure.
Asset Derivatives December 31, 2009
----------------------------------------
Derivatives not
accounted for as Location in the Notional
hedging instruments Statements of Value/No. of
under FASB Assets and Contracts Fair
ASC 815 Liabilities Long/(Short) Value
- ---------------------------------------------------------------------------------------------
Equity Contracts Receivables, Net (797,390)/11 10,107*
Assets-Unrealized
Appreciation/
(Depreciation) on
Futures
- ---------------------------------------------------------------------------------------------
Asset Derivatives December 31, 2009 Liability Derivatives December 31, 2009
-------------------------------------------------------------------------------
Derivatives not
accounted for as Location in the Location in Notional
hedging instruments Statements of the Statements Value/No. of
under FASB Assets and of Assets and Contracts Fair
ASC 815 Liabilities Liabilities Long/(Short) Value
- -------------------------------------------------------------------------------------------------------------
Equity Contracts Receivables, Net -- -- --
Assets-Unrealized
Appreciation/
(Depreciation) on
Futures
- -------------------------------------------------------------------------------------------------------------
*Includes cumulative appreciation/depreciation of futures contracts as reported
in the Schedule of Investments and Equity Section of the Statement of Assets
and Liabilities. Only the current day's variation margin is reported within
receivables and/or payables the Statement of Assets and Liabilities.
Shown below are the effects of derivative instruments on the Fund's Statements
of Operations, summarized by primary risk exposure.
Derivatives
not accounted Total Number Realized Gain Change in
of or (Loss) on Unrealized
for as hedging instruments Location in Futures/Options Derivatives Appreciation/(Depreciation) on
under FASB ASC the Statements Contracts Recognized in Derivatives Recognized
815 of Operations Purchased (Sold) Income in Income
- --------------------------------------------------------------------------------------------------------------
Equity Net realized 361/(370) 58,082 12,279
Contracts gain/(loss) on
futures,
Increase/(decrease)
in unrealized
appreciation/
(depreciation)
on futures
- --------------------------------------------------------------------------------------------------------------
3. LINE OF CREDIT
The Company shares a revolving credit facility of up to $150 million with a
number of its affiliates. The credit facility is with its custodian bank, State
Street Bank and Trust Company. The revolving credit facility requires the
payment of a commitment fee equal to 0.15% per annum on the daily unused
portion of the credit facility, payable quarterly. The portion borne by the
Funds generally is borne proportionally based upon net assets. In addition, the
Company has a $100 million uncommitted, unsecured line of credit with State
Street. Generally, borrowings under the credit facilities would accrue interest
at the Federal Funds Rate plus 50 basis points and would be borne by the
borrowing Fund. The maximum amount allowed to be borrowed by any one Fund is
the lesser of (i) its prospectus limitation or (ii) 20% of its net assets. The
credit facilities were not utilized by the Fund during the fiscal year ended
December 31, 2009.
4. AMOUNTS PAID TO AFFILIATES
GEAM, a registered investment adviser, was retained by the Company's Board of
Directors effective May 1, 1997 to act as investment adviser and administrator
of the Fund.
GEAM's compensation for investment advisory and administrative services is paid
monthly based on the average daily net assets of the Fund at an annualized rate
of 0.65%.
GEAM waives a portion of the Fund's management fee in the amount equal to the
management fee earned by GEAM with respect to the Fund's investment in the GE
Funds -- GE Money Market Fund.
DISTRIBUTION AND SERVICE (12B-1) FEES The Company has adopted a Distribution
and Service (12b-1) Plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act
with respect to Class 4 shares of the Fund. Under the Plan, the Fund may
compensate GE Investment Distributors, Inc. ("GEID"), a wholly-owned subsidiary
of GEAM and the Fund's principal distributor, for certain sales services
provided by GEID or
20
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
other broker dealers and investor services provided by GEID or other service
providers relating to the Fund's Class 4 shares, including services to owners
or prospective owners of variable contracts issued by insurance companies that
offer such share class as an investment option. The amount of compensation paid
under the Plan by the Fund's Class 4 shares may not exceed 0.45% of the average
daily net assets of the Fund attributable to such share class. The Plan
continues in effect from year to year for so long as such continuance is
approved annually by the Board of Directors, including by those directors who
are not interested persons of the Company and who have no direct or indirect
financial interest in the operation of the Plan or in any agreement related to
it.
GENPACT performs certain accounting and certain administration services not
provided by GEAM. For the period ending December 31, 2009, $1,360 was charged
to the Fund.
DIRECTORS' COMPENSATION The Fund pays no compensation to its directors who are
officers or employees of GEAM or its affiliates. Directors who are not such
officers or employees also serve in a similar capacity for other funds advised
by GEAM. Compensation paid to unaffiliated directors are reflected on the
Statement of Operations. These fees are allocated pro rata across all of the
mutual fund platforms and share classes served by the directors, including the
Fund, and are based upon the relative net assets of each fund within such
platforms. (For additional information about directors compensation please
refer to the Statement of Additional Information.)
5. INVESTMENT TRANSACTIONS
PURCHASES AND SALES OF SECURITIES The cost of purchases and the proceeds from
sales of investments, other than short-term securities and options, for the
period ended December 31, 2009 were as follows:
U.S. Government Securities
-----------------------------------------------------
Purchases Sales
-----------------------------------------------------
$-- $--
Other Securities
-----------------------------------------------------
Purchases Sales
-----------------------------------------------------
$19,234,323 $36,979,630
SECURITY LENDING At December 31, 2009 and for the year then ended, the Fund did
not participate in securities lending.
21
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors GE Investments Funds, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the Mid-Cap Equity Fund, a series of
GE Investments Funds, Inc., as of December 31, 2009, and the related statement
of operations for the year then ended, statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years or periods in the five-year period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of December 31, 2009 by
correspondence with the custodian and brokers, or by other appropriate auditing
procedures where replies from brokers were not received. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Mid-Cap Equity Fund as of December 31, 2009, the results of its operations,
changes in its net assets and financial highlights for each of the years or
periods described above, in conformity with U.S. generally accepted accounting
principles.
/s/ KPMG LLP
Boston, Massachusetts
February 25, 2010
22
Advisory and Administrative Agreement Renewal (unaudited)
- ---------------------------------------------------------------
The Board of Directors of the GE Investments Funds, Inc. (the "Board"),
including the independent Board members, considered and all those that were
present unanimously approved the continuance of the Fund's Investment Advisory
and Administration Agreement with GE Asset Management Incorporated ("GEAM") at
meetings held on December 4 and December 11, 2009.
In considering whether to approve the Fund's investment advisory agreement, the
Board members considered and discussed a substantial amount of information and
analysis provided, at the Board's request, by GEAM. The Board members also
considered detailed information regarding performance and expenses of other
investment companies, including those with similar investment objectives and
sizes, which was prepared by independent third party providers, Lipper
Analytical Services Inc. ("Lipper") and Morningstar, Inc. ("Morningstar"). GEAM
does not manage any other mutual funds or investment products other than mutual
funds that employ the same investment strategy as the Fund. The Board had the
opportunity to ask questions and request additional information in connection
with its considerations.
Before approving the Fund's advisory agreement, the Board members reviewed the
information provided with management of GEAM and with independent legal
counsel. The Board members also reviewed a memorandum prepared by independent
legal counsel discussing the legal standards for the consideration of the
proposed continuance. The independent Board members discussed the proposed
continuance in detail during a private session with their independent legal
counsel at which no representatives of GEAM were present. The independent Board
members and their independent legal counsel requested, and received and
considered, additional information from GEAM following these sessions.
In advance of the meetings, and in response to their request, the Board members
received from GEAM written responses to their inquiries, which included
substantial exhibits and other materials related to GEAM's business and the
services it provides to the Fund. The Board members took into account their
multi-year experience as Board members and particularly their consideration of
these types of agreements in recent years. The information was presented in a
manner to facilitate comparison to prior periods and to reflect certain
enhancements. To focus their review, the Board members asked GEAM management,
in its oral presentation, to highlight material differences from the
information presented in recent years.
During the meetings, the Board members had an opportunity to discuss this
information with GEAM managers, including senior executives, representatives
from the legal, compliance and finance departments, and investment personnel.
The Board members posed questions to these representatives and engaged in
substantive discussions with them concerning GEAM's investment process.
In reaching their determination relating to continuance of the Fund's
investment advisory agreement, the Board members considered all factors that
they deemed relevant, including the factors discussed below. In their
deliberations, the Board members did not identify any particular information
that was all-important or controlling, and each Board member may have
attributed different weights to the various factors. In particular, the Board
members focused on the following:
The Nature, Extent And Quality Of Services Provided.
The Board members reviewed the services provided by GEAM, taking into account
their extensive past experiences with GEAM. They focused on the favorable
attributes of GEAM, including (i) an investment philosophy oriented toward
long-term performance; (ii) effective processes used for selecting investments
and brokers; (iii) effective processes used for providing Fund administration,
including controllership and compliance functions and oversight of the
performance of other companies that provide services to the Fund; (iv) highly
skilled professionals including analysts, research professionals, traders and
portfolio managers with a depth of experience involving the types of Funds they
oversee; (v) access to significant technological resources from which the Fund
may benefit; and (vi) a favorable history and reputation. The Board members
noted that the Fund represents only a small portion of the assets managed by
GEAM, but benefits from a full array of services and resources provided by GEAM.
In light of these discussions, the Board, including the independent Board
members, concluded that GEAM's services continue to be satisfactory.
Investment Performance Of The Fund.
The Board members considered the investment performance of the Fund for various
periods. The Board members reviewed detailed comparisons of the performance of
the Fund with the relevant securities indices and peer groupings of mutual
funds prepared by Lipper
23
Advisory and Administrative Agreement Renewal (unaudited)
- ---------------------------------------------------------------
and Morningstar with respect to various periods. The Board members also engaged
in detailed discussions with GEAM management about its investment process and
performance results. These discussions focused on the Fund's investment
objective, the number and experience of portfolio management and supporting
research personnel, the investment style and approach employed and the likely
market cycles for the investment style.
The Board, including the independent Board members, concluded that the Fund's
performance was acceptable overall taking into consideration the factors
discussed above.
Cost Of The Services Provided And Profits Realized From The Relationship With
The Fund.
The Board members considered the fees paid to GEAM by the Fund and the cost of
the services provided to the Fund by GEAM. The Board members reviewed the
information they had requested from GEAM concerning its profitability. The
Board members considered the profit margin information for GEAM's investment
company business as a whole, as well as GEAM's profitability data for the Fund.
The Board members reviewed GEAM's assumptions and the methods of cost
allocation used by GEAM in preparing Fund-specific profitability data. The
Board members also discussed with GEAM the basis for its belief that the
methods of allocation used were reasonable for each area of its business.
Information was presented regarding the financial condition of GEAM for various
past periods. The Board members noted and discussed the additional services
provided by GEAM to the Fund compared to other investment products managed by
GEAM, and were provided a study conducted by the Investment Company Institute
that discusses and compares advisory fees and services for mutual funds and
institutional separate accounts. The Board members determined that GEAM should
be entitled to earn a reasonable level of profits for the services it provides
to the Fund. The Board members also recognized that GEAM had made significant
investments in its business and had not fully recovered the sums invested. The
Board also considered that, in the face of overall declining assets and
revenues over the course of the past year, GEAM continues to make a substantial
investment in fulfilling its obligations to the Fund and supporting its
Fund-related activities.
Based on their review, the Board, including the independent Board members,
concluded that they were satisfied that the level of profitability achieved by
GEAM from its relationship with the Fund was not unreasonable or excessive.
The Extent To Which Economies Of Scale Would Be Realized As The Fund Grows And
Whether Fee Levels Would Reflect Such Economies Of Scale.
Although the Board noted that the Fund did not experience significant growth in
assets over the past year, the Board members considered the extent to which
economies of scale would be realized as the Fund grows, and whether fee levels
reflect these economies of scale for the benefit of Fund investors.
The Board members considered the substantial infrastructure investments that
GEAM has made with respect to its operations and its commitment to continue
investing resources to enhance services to Fund shareholders. The Board members
recognized the benefits to the Fund of GEAM's past investment in its operations
through the expenditure of sums to support its substantial infrastructure, and
that, with respect to all GEAM managed mutual funds, GEAM has not yet fully
recouped that investment. The Board members also recognized the benefits to the
Fund of being able to leverage a favorable cost structure achieved with respect
to the Fund's other operating expenses as a result of GEAM's large overall base
of assets under management and its vendor management practices.
Comparison Of Services To Be Rendered And Fees To Be Paid.
The Board members discussed the services provided to the Fund by GEAM, and the
fees charged for those services. The Board members reviewed information
concerning the fee and expense ratios for the Fund, and comparative information
with respect to similar products. They discussed that the Fund's figures were
within the applicable peer group range. In light of the foregoing, the Board,
including the independent Board members, determined that the advisory fees were
reasonable in relation to the services provided to the Fund.
Fall-Out Benefits.
The Board members considered other actual and potential financial benefits that
GEAM may derive from its relationship with the Fund, including, to the extent
24
Advisory and Administrative Agreement Renewal (unaudited)
- ---------------------------------------------------------------
applicable, soft dollar commission benefits generated through Fund portfolio
transactions. The Board members noted, however, that the Fund benefits from the
vast array of resources available through GEAM, and that the Fund represents
only a small portion of the assets managed by GEAM.
Conclusion.
No single factor was determinative to the Board's decision. Based on their
discussion and such other matters as were deemed relevant, the Board, including
the independent Board members, concluded that renewal of the advisory agreement
was in the best interests of the Fund and its shareholders.
25
Additional Information (unaudited)
- ---------------------------------------------------------------
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS:
The business and affairs of the Company are managed under the direction of the
Company's Board of Directors. Information pertaining to the Directors and
officers of the Company is set forth below.
INTERESTED DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
MICHAEL J. COSGROVE
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
POSITION(S) HELD WITH FUND Chairman of the Board and President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS President and Chief Executive
Officer - Mutual Funds and Intermediary Business since March 2007; Executive
Vice President of GEAM from February 1997 to March 2007; Director of GEAM since
1988; Vice President, GE Capital Corporation, an indirect wholly-owned
subsidiary of GE, since December 1999; Executive Vice President - Sales and
Marketing of GEAM, a wholly-owned subsidiary of GE that is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, from
March 1993 to March 2007.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 51
OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE
Funds since 1993, and GE Institutional Funds since its inception; Trustee of
General Electric Savings & Security Trust, General Electric S&S Income Fund,
General Electric S&S Program Mutual Fund ("GE Savings & Security Funds"), Elfun
Funds, General Electric Insurance Plan Trust, General Relief Loan Fund, and
General Electric Pension Trust since 1988; Trustee of Fordham University since
2002; Trustee of GE Volunteers since 1993; Director, GE Asset Management
(Ireland) since February 1999; Director, GE Asset Management Funds Plc., GE
Asset Canada Company, and GE Asset Management Limited since 1998.
- --------------------------------------------------------------------------------
MATTHEW J. SIMPSON
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 48
POSITION(S) HELD WITH FUND Director and Executive Vice President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 2 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President, General
Counsel and Secretary of GEAM since July 2007; Senior Vice President and
General Counsel - Marketing and Client Services (formerly Asset Management
Services), at GEAM and Senior Vice President and General Counsel of GEAMS from
February 1997 to June 2007; Vice President and Associate General Counsel of
GEAM from October 1992 to February 1997; Secretary of Fund from 1997 to June
2007; Vice President of Fund from September 2003 to June 2007; Vice President
of GE Institutional Funds from September 2003 to June 2007; Secretary of GE
Institutional Funds and GE LifeStyle Funds from 1997 to June 2007; Vice
President of Elfun Funds and GE Savings & Security Funds from October 2003 to
June 2007; Assistant Secretary of Elfun Funds and GE Savings & Security Funds
from 1998 to June 2007.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 51
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds, GE Institutional
Funds, Elfun Funds and GE Savings & Security Funds since July 2007.
26
Additional Information (unaudited)
- ---------------------------------------------------------------
- --------------------------------------------------------------------------------
SCOTT H. RHODES
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 49
POSITION(S) HELD WITH FUND Treasurer
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 3 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS GEAM Mutual Funds Operations
Manager since September 2005; Treasurer of GE Institutional Funds, GE LifeStyle
Funds and GE Investments Funds since November 2005 and Elfun Funds and GE
Savings & Security Funds since September 2005; from August 2004 to September
2005 Vice President, U.S. Trust Company, N.A. and Assistant Treasurer of
Excelsior Funds, Inc., Excelsior Funds Trust, and Excelsior Tax Exempt Funds,
Inc.; from January 2004 to August 2004, Vice President BlackRock Financial
Management, Inc.; from December 1996 to November 2003, Controller - Mutual
Funds, American Skandia Investment Services, Inc. and Assistant Treasurer of
American Skandia Trust and American Skandia Advisor Funds, Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
JEANNE M. LAPORTA
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 44
POSITION(S) HELD WITH FUND Vice President and Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 5 years (Vice President); 3 years (Secretary)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Senior Vice President and Deputy
General Counsel at GE Asset Management since October 2007; Vice President and
Associate General Counsel - Marketing and Client Services (formerly Asset
Management Services) at GEAM from May 1997 to October 2007; Vice President and
Assistant Secretary of GE Funds and GE Institutional Funds from September 2003
to July 2007; Vice President and Secretary of GE Funds and GE Institutional
Funds since July 2007; Vice President and Assistant Secretary of Elfun Funds
and GE Savings & Security Funds since October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
27
Additional Information (unaudited)
- ---------------------------------------------------------------
- --------------------------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 63
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS General Partner, NGN Capital LLC
since 2006; Managing Director, Vice President of Walden Capital Management
since 1996.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, GE
Institutional Funds since its inception; Trustee of Fordham University from
1989 to 1995 and 2001 to 2007 and Trustee Emeritus since 2007; Trustee of
NeuroScience Research Institute since 1986; Trustee of Gregorian University
Foundation from 1992 to 2007; Director of Artes medical from 2006 to 2008.
- --------------------------------------------------------------------------------
WILLIAM J. LUCAS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 61
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Treasurer of
Fairfield University since 1983.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds since its inception.
- --------------------------------------------------------------------------------
ROBERT P. QUINN
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 74
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon
Brothers Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds since its inception; Trustee, St. Francis Hospital Corp.
- --------------------------------------------------------------------------------
The Statement of Additional Information for the Fund includes additional
information about the Directors and Officers and is available, without charge,
upon request by calling 1-800-493-3042.
28
Investment Team
- ----------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
GE Asset Management Incorporated
BOARD OF DIRECTORS
Michael J. Cosgrove, Chairman
John R. Costantino
William J. Lucas
Robert P. Quinn
Matthew J. Simpson
SECRETARY
Jeanne M. LaPorta
ASSISTANT SECRETARIES
Joseph A. Carucci
Joon Won Choe
Kimberley Costello
Michelle Matzelle
TREASURER
Scott H. Rhodes
ASSISTANT TREASURERS
Scott R. Fuchs
Christopher M. Isaacs
DISTRIBUTOR
GE Investment Distributors, Inc.
Member FINRA and SIPC
COUNSEL
Sutherland, Asbill & Brennan, LLP
CUSTODIAN
State Street Bank & Trust Company
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
KPMG LLP
OFFICERS OF THE INVESTMENT ADVISER
James W. Ireland, President and Chief Executive Officer
Cheryl H. Beacock, Senior Vice President, Human Resources
Daniel O. Colao, Executive Vice President, Chief Financial Officer
Michael J. Cosgrove, President and Chief Executive Officer - Mutual Funds &
Intermediary Business
Paul M. Colonna, President and Chief Investment Officer - Fixed Income
Investments
Amiel Goldberg, Senior Vice President, Chief Risk Officer
Ralph R. Layman, President and Chief Investment Officer - Public Equity
Investments (since July 2009)
Maureen B. Mitchell, President - Institutional Sales and
Marketing (since July 2009)
Matthew J. Simpson, Executive Vice President, General Counsel and Secretary
Judith A. Studer, Chief Market Strategist (since July 2009)
Don W. Torey, President - Alternative Investments
John J. Walker, Executive Vice President, Chief Operating Officer
David Wiederecht, President and Chief Investment Officer - Investment Strategies
29
Investment Adviser
GE Asset Management Incorporated
3001 Summer Street
PO Box 7900
Stamford, CT 06904-7900
Distributor
GE Investment Distributors, Inc.
member FINRA and SIPC
3001 Summer Street
PO Box 7900
Stamford, CT 06904-7900
The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission for the first and third quarters of each
fiscal year on Form N-Q. The Fund's Forms N-Q, as well as a description of
the policies and procedures that the Fund uses to determine how to vote
proxies (if any) relating to portfolio securities is available without
charge (i) upon request, by calling 1-800-493-3042; (ii) on the Fund's
website at http://www.geam.com; and (iii) on the Commission's website at
http://www.sec.gov. The Fund's Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC--information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to
portfolio securities during the most recently disclosed 12-month period
ended June 30 is available without charge (i) through the Fund's website at
http://www.geam.com; and (ii) on the Commission's website at
http://www.sec.gov.
[LOGO] GE
GE Investments Funds, Inc.
Money Market Fund
Annual Report
December 31, 2009
[LOGO]
GE
GE Investments Funds, Inc.
Money Market Fund Contents
- ------------------------------------------------------------
NOTES TO PERFORMANCE....................................................... 1
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS................................. 2
NOTES TO SCHEDULE OF INVESTMENTS........................................... 8
FINANCIAL STATEMENTS
Financial Highlights.................................................... 9
Statement of Assets and Liabilities..................................... 10
Statement of Operations................................................. 11
Statements of Changes in Net Assets..................................... 12
Notes to Financial Statements........................................... 13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.................... 18
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL.............................. 19
ADDITIONAL INFORMATION..................................................... 22
INVESTMENT TEAM............................................................ 25
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
Notes to Performance December 31, 2009
- ---------------------------------------------------------------------
Information on the following performance pages relating
to the GE Investments Money Market Fund one year total return and Schedule of
Investments is audited. All other information, including the portfolio manager
Q&A pages, is unaudited.
Total returns take into account changes in share price and assume reinvestment
of all dividends and capital gains distributions, if any. Total returns shown
are net of Fund expenses but do not reflect fees and charges associated with
the variable contracts such as administrative fees, account charges and
surrender charges, which, if reflected, would reduce the Fund's total returns
for all periods shown.
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be higher or lower than the performance
data quoted. Periods less than one year are not annualized. Please call
800-493-3042 or visit the Fund's website at http://www.geam.com for the most
recent month-end performance data.
An investment in a Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency. An investment in a Fund is subject to risk, including
possible loss of principal invested.
The 90 Day T-Bill is an unmanaged measure/index of the performance of U.S.
Treasury bills currently available in the marketplace having a remaining
maturity of 90 days.
The peer universe of the underlying annuity funds used in our peer group
average return calculation is based on the blend of Morningstar peer
categories, as shown. Morningstar is an independent mutual fund rating service.
A Fund's performance may be compared to or ranked within a universe of mutual
funds with investment objectives and policies similar but not necessarily
identical to the Fund's.
(C)2009 Morningstar, Inc. All Rights Reserved. The information contained
herein: (1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is no warranted to be accurate, complete
or timely. Neither Morningstar nor its content providers are responsible for
any damage or losses relating from any use of this information. Past
performance is no guarantee or future results.
- --------------
GE Investment Distributors, Inc., Member of FINRA & SIPC, is the principal
underwriter and distributor of the GE Investment Funds, Inc. and a wholly owned
subsidiary of GE Asset Management Incorporated, the investment adviser of the
Fund.
1
Money Market Fund
- --------------------------------------------------------------------------------
[PHOTO]
Michael E. Martini
The Money Market Fund is managed by a team of portfolio managers that includes
Adam W. Ackermann, James C. Gannon and Michael E. Martini. As lead portfolio
manager for the Money Market Fund, Mr. Martini has oversight responsibilities
over the Fund.
Michael E. Martini is a Vice President and a Portfolio Manager at GE Asset
Management. He has served on the portfolio management team for the Money Market
Fund since joining GE Asset Management in March of 2008. Prior to joining GE
Asset Management, Mr. Martini was a Vice President at Ceres Capital Partners
LLC, where he worked at the firm's treasury desk from March 2006 to January
2008, and a Senior Vice President at Pacific Investment Management Company
(PIMCO) from 1996 to 2004, where he was a portfolio manager at the firm's money
market/short-term desk.
Adam W. Ackermann is an Assistant Portfolio Manager at GE Asset Management. He
has served on the portfolio management team for the Money Market Fund since
June 2009. His responsibilities include cash management, including daily money
market trade execution, and technical projects. Mr. Ackermann joined GE Asset
Management in 2005 through the summer internship program working with the U.S.
equity mid-cap portfolio management team. Adam then joined the fixed income
team as an analyst, and in 2007 became manager of the global fixed income
trading operations until June 2009.
James C. Gannon is an Assistant Portfolio Manager of GE Asset Management. He
has served on the portfolio management team for the Money Market Fund since
December 2000. Since joining GE Asset Management in 1995, Mr. Gannon served in
various positions at GE Asset Management including Trade Operations Specialist
in fixed income, and became an Assistant Portfolio Manager in February 2003.
Q. HOW DID THE MONEY MARKET FUND PERFORM COMPARED TO ITS BENCHMARK AND
MORNINGSTAR PEER GROUP FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2009?
A. For the twelve-month period ended December 31, 2009, the Class 1 shares of
the Money Market Fund returned 0.27%. The 90-day Treasury Bill, the Fund's
benchmark, returned 0.15% and the Fund's Morningstar peer group of 99 US
Insurance Money Market Taxable funds returned an average of 0.14% for the
same period.
Q. DESCRIBE WHAT HAPPENED IN THE U.S. ECONOMY DURING THE TWELVE-MONTH PERIOD
ENDING DECEMBER 31, 2009.
A. Financial markets rallied strongly beginning in March 2009 as policymakers
around the world kept the liquidity pump primed and the global economy began
recovering from the recession in 2008. GDP growth in the U.S. turned
positive in the third quarter, while unemployment continued to rise ending
the year at 10%. The U.S. lost over 4 million jobs in 2009 (reported by the
Bureau of Labor Statistics). Government support programs targeting the auto
(Cash for Clunkers) and housing (first-time homebuyer tax credits)
industries created demand which boosted second half growth.
Central banks around the globe kept interest rates low throughout the year.
The Federal Reserve held its federal funds target at 0 - 0.25% and finished
the year with a balance sheet over $2.2 trillion, 2 1/2 times its size prior
to the financial crisis in August 2007. In the statement from its final
meeting in December, the Federal Open Market Committee (FOMC) repeated that
"economic conditions...are likely to warrant exceptionally low levels of the
federal funds rate for an extended period." Quantitative easing measures
including the purchase of $1.25 trillion of agency mortgage-back securities
(MBS) and $175 billion of agency debt are scheduled to wind down early in
2010 along with many of the special liquidity facilities given the
improvement in the financial markets.
2
- --------------------------------------------------------------------------------
[GRAPHIC]
Q&A
The improving fundamental backdrop created a performance environment in
which non-government related issues (corporate, commercial MBS,
asset-backed) outperformed U.S. government securities including agency
mortgage-backed securities. Interest rates rose across the maturity spectrum
in 2009 producing negative total returns for U.S. treasuries. The U.S.
treasury 2-year and 10-year note yield ended the year at 1.14% and 3.84%
respectively, up 38 basis points (bps) and 163 bps. Default expectations
tumbled as economic activity recovered and credit spreads collapsed from
March highs. Lower quality credit rewarded investors with outsized returns.
The high yield market returned over 58% compared to high grade credit which
gained just over 16%. Commercial mortgage-backed and asset-backed securities
also performed strongly, up 28.5% and 24.7% respectively, with help from the
Term Asset-Backed Loan Facility (TALF) program.
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE?
A. Managing the average maturity of the Fund had a large impact on Fund
performance. With short-term interest rates hovering close to zero
throughout the year, we maintained a longer average Fund maturity to capture
more yield. As the short-term credit markets normalized during the year, we
took advantage of high quality commercial paper and LIBOR based floating
rate notes at attractive yields.
3
Money Market Fund
- --------------------------------------------------------------------------------
Understanding Your Fund's Expenses
As a shareholder of the Fund you incur ongoing expenses, which include
portfolio management fees, professional fees, administrative fees and other
Fund expenses. The following example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors during the period. The information in the
following table is based on an investment of $1,000, which is invested at the
beginning of the period and held for the entire six-month period ended
December 31, 2009.
ACTUAL EXPENSES
The first section of the table provides information about actual account values
and actual expenses. You may use the information in this section, together with
the amount you invested, to estimate the expenses that you paid over the
period. To do so, simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and
an assumed rate of return of 5% per year before expenses, which is not the
Fund's actual return. You may use this information to compare the ongoing costs
of investing in the Fund and other funds. To do so, compare this 5%
hypothetical example with the 5% hypothetical examples that appear in the
shareholders reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2009 - DECEMBER 31, 2009
- ------------------------------------------------------------------------------------------------
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID
BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) DURING THE PERIOD ($)*
- ------------------------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 1,000.16 2.17
- ------------------------------------------------------------------------------------------------
Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,022.78 2.19
- ------------------------------------------------------------------------------------------------
*Expenses are equal to the Fund's annualized expense ratio of 0.43% (for the
period July 1, 2009--December 31, 2009), multiplied by the average account
value over the period, multiplied by 184/365 (to reflect the six month period).
**Actual Fund Return for the six-month period ended December 31, 2009 was:
0.02%.
4
Money Market Fund
- --------------------------------------------------------------------------------
CHANGE IN VALUE OF A $10,000 INVESTMENT
CLASS 1 SHARES
- --------------------------------------------------------------------------------
[CHART]
Money Market Fund 90 Day T-Bill
Date lending value lending value
- ----- ---------------- -------------
Dec-99 $10,000.00 $10,000.00
Dec-00 10,623.58 10,600.53
Dec-01 11,047.05 10,967.53
Dec-02 11,211.08 11,146.37
Dec-03 11,298.62 ` 11,260.84
Dec-04 11,405.43 11,418.22
Dec-05 11,724.08 11,785.52
Dec-06 12,268.97 12,355.03
Dec-07 12,873.14 12,906.54
Dec-08 13,161.75 13,085.56
Dec-09 13,197.67 13,105.02
[GRAPHIC]
INVESTMENT PROFILE
A mutual fund designed for investors who seek a high level of current income
consistent with the preservation of capital and maintenance of liquidity by
investing primarily in short-term U.S. dollar-denominated money market
instruments.
- --------------------------------------------------------------------------------
TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 2009
- --------------------------------------------------------------------------------
CLASS 1 SHARES
- --------------------------------------------------------------------------------
ONE FIVE TEN ENDING VALUE OF A
YEAR YEAR YEAR $10,000 INVESTMENT
----------------------------------------------------------------------
Money Market Fund 0.27% 2.96% 2.81% 13,198
----------------------------------------------------------------------
90 Day T-Bill 0.15% 2.79% 2.74% 13,105
----------------------------------------------------------------------
Morningstar peer group average* 0.14% 2.81% 2.64%
----------------------------------------------------------------------
Inception date 7/1/85
----------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND YIELD AT DECEMBER 31, 2009
- --------------------------------------------------------------------------------
FUND MONEY FUND REPORT**
-------------------------------------------
7-day current 0.00%+ 0.07%
-------------------------------------------
7-day effective 0.00% 0.07%
-------------------------------------------
CURRENT YIELD represents income earned on an investment in the Money Market
Fund for a seven day period and then annualized.
EFFECTIVE YIELD is calculated similarly but could be slightly higher because it
reflects the compounding effect of earnings on reinvested dividends.
+ The seven day current yield, rather than the total return, more closely
reflects the current earnings of the Money Market Fund at December 31, 2009.
**IBC's Money Fund report provides average yield for all major money market
funds.
AN INVESTMENT IN THE MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH
THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT
IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
* Morningstar performance comparisons are based on average annual total returns
for the one year, five-year, and ten-year periods indicated in the Money
Market Taxable peer group consisting of 99, 94 and 71 underlying annuity
funds, respectively.
See Notes to Performance on page 1 for further information, including an
explanation of Morningstar peer categories.
Past performance does not predict future performance and the graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
5
MONEY MARKET FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
MONEY MARKET FUND
Portfolio Composition based on a Market Value of $325,618 (in thousands) as of
December 31, 2009
[CHART]
Commercial Paper 31.0%
Certificates of Deposit 27.9%
Corporate Notes 21.1%
Agency 10.4%
Repurchase Agreements 5.9%
Time Deposit 3.7%
PRINCIPAL AMORTIZED
AMOUNT COST
SHORT-TERM INVESTMENTS -- 99.9% +
------------------------------------------------------------
AGENCY -- 10.4%
FNMA
0.22% 02/12/10..... $ 5,630,000 $ 5,642,555 /(a)/
Federal Home Loan Bank
2.75% 03/12/10..... 4,100,000 4,120,151
FNMA Discount
0.07% 02/01/10..... 3,400,000 3,399,795 /(a)/
FHLMC
0.14% 02/04/10..... 18,390,000 18,390,000 /(a)/
4.88% 02/09/10..... 2,170,000 2,238,455
33,790,956
COMMERCIAL PAPER -- 30.9%
Allied Irish Banks NA
0.53% 03/03/10..... 11,900,000 11,889,313 /(a)/
Australia & NZ Banking Group
0.21% 01/07/10..... 3,700,000 3,699,870 /(a)/
Bank of America Corp.
0.15% 01/08/10..... 10,000,000 9,999,708 /(a)/
CBA Delaware Finance Inc.
0.28% 06/10/10..... 11,800,000 11,785,316 /(a)/
Danske Corp.
0.48% 01/19/10..... 7,240,000 7,238,262 /(a)/
Eksportfinans ASA
0.08% 01/04/10..... 8,490,000 8,489,943 /(a)/
Her Majesty Rgt Canada
0.30% 01/21/10..... 2,950,000 2,949,508 /(a)/
PRINCIPAL AMORTIZED
AMOUNT COST
HSBC USA Inc.
0.10% 01/04/10..... $ 2,800,000 $ 2,799,977 /(a)/
0.24% 04/14/10..... 8,400,000 8,394,232 /(a)/
IBRD Discount Note
0.15% 02/26/10..... 5,800,000 5,798,647 /(a)/
Nordea North America
0.23% 02/05/10..... 7,200,000 7,198,390 /(a)/
Societe Generale N Amer
0.29% 05/17/10..... 5,100,000 5,094,413 /(a)/
0.34% 02/02/10..... 7,650,000 7,647,688 /(a)/
Toyota Motor Credit
0.18% 02/03/10..... 7,800,000 7,798,713 /(a)/
100,783,980
REPURCHASE AGREEMENTS -- 5.9%
Barclays
0.00% dated 12/31/09, to be
repurchased at $6,240,000 on
01/01/10 collateralized by
$6,364,875 U.S. Government
Agency Bonds, 1.38%,
maturing 05/15/12.
01/04/10..................... 6,240,000 6,240,000 /(a)/
Deutsche Bank Gov Agcy Repo
0.01% dated 12/31/09, to be
repurchased at $9,500,011 on
01/01/10 collateralized by
$9,694,886 U.S. Government
Agency Bonds, 4.25% and
1.75%, maturing 06/10/11
and 04/13/12.
01/04/10..................... 9,500,000 9,500,000 /(a)/
HSBC Gov Agcy Repo
0.01% dated 12/31/09, to be
repurchased at $3,500,000 on
01/01/10 collateralized by
$3,576,994 U.S. Government
Agency Bonds, 8.75%,
maturing 08/15/20.
01/04/10..................... 3,500,000 3,500,000 /(a)/
19,240,000
CORPORATE NOTES -- 21.1%
Abbey National Treasury Services
0.66% 02/25/10..... 12,540,000 12,540,000 /(a)/
Bank of Nova Scotia Houston
0.23% 12/17/10..... 3,000,000 3,000,000 /(a)/
0.43% 01/15/10..... 10,360,000 10,360,000 /(a)/
European Investment Bank
5.00% 02/08/10..... 920,000 924,423
Freddie Mac
2.38% 05/28/10..... 9,050,000 9,127,594
See Notes to Schedules of Investments on page 8 and Notes to Financial
Statements on page 13.
6
MONEY MARKET FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
PRINCIPAL AMORTIZED
AMOUNT COST
KFW
0.33% 01/21/10......... $ 5,020,000 $ 5,021,082 /(a)/
Procter & Gamble International Fn
0.29% 05/07/10......... 2,680,000 2,680,000 /(a)/
Rabobank Nederland NY
0.26% 07/23/10......... 4,100,000 4,099,734 /(a)/
0.38% 04/26/10......... 8,770,000 8,770,000 /(a)/
Royal Bank of Canada NY
0.36% 01/26/10......... 12,230,000 12,230,000 /(a)/
68,752,833
TIME DEPOSIT - 3.7%
Bank of Ireland
0.10% 01/04/10......... 12,020,000 12,020,000 /(a)/
State Street Corp.
0.01% 01/04/10......... 159,475 159,475 /(b)/
12,179,475
CERTIFICATES OF DEPOSIT -- 27.9%
Australia & NZ Banking Group
0.35% 05/25/10......... 6,000,000 6,000,718 /(a)/
Banco Bilbao Vizcaya Argentaria
NY
0.22% 02/17/10......... 4,800,000 4,800,034 /(a)/
Bank of Montreal Chicago
0.19% 02/22/10......... 6,800,000 6,800,000 /(a)/
Barclays Bank PLC NY
0.44% 05/03/10......... 5,100,000 5,100,000 /(a)/
0.70% 04/15/10......... 8,850,000 8,850,000 /(a)/
BNP Paribas NY
0.20% 03/01/10......... 4,400,000 4,400,000 /(a)/
0.31% 01/14/10......... 7,450,000 7,450,000 /(a)/
Calyon New York
0.60% 01/05/10......... 14,390,000 14,390,000 /(a)/
Deutsche Bank Ag NY
0.50% 01/06/10......... 7,430,000 7,430,000 /(a)/
National Australia Bank NY
0.18% 02/23/10......... 6,000,000 6,000,000 /(a)/
Svenska Handelsbanken NY
0.22% 02/11/10......... 10,200,000 10,200,116 /(a)/
Toronto-Dominion Bank NY
0.33% 05/17/10......... 5,350,000 5,350,202 /(a)/
Westpac Banking Corp NY
0.30% 10/06/10......... 4,100,000 4,099,969 /(a)/
90,871,039
PRINCIPAL AMORTIZED
AMOUNT COST
TOTAL SHORT-TERM INVESTMENTS
(COST $325,618,283).......... $325,618,283
OTHER ASSETS AND LIABILITIES,
NET -- 0.1%.................. 454,084
------------
NET ASSETS -- 100.0%.......... $326,072,367
============
See Notes to Schedules of Investments on page 8 and Notes to Financial
Statements on page 13.
7
Notes to Schedules of Investments December 31, 2009
- ---------------------------------------------------------------------
The views expressed in this document reflect our judgment as of the publication
date and are subject to change at any time without notice. The securities cited
may not represent current or future holdings and should not be considered as a
recommendation to purchase or sell a particular security. See the prospectus
for complete descriptions of investment objectives, policies, risks and
permissible investments.
(a)Coupon amount represents effective yield.
(b)State Street Corp. is the parent company of State Street Bank & Trust Co.,
the Fund's custodian and accounting agent.
+ Percentages are based on net assets as of December 31, 2009 .
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
8
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
MONEY MARKET FUND
12/31/09 12/31/08 12/31/07 12/31/06 12/31/05
-------- -------- -------- -------- --------
INCEPTION DATE -- -- -- -- 7/1/85
Net asset value, beginning of period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................ -- 0.02 0.05 0.05 0.03
Net realized and unrealized gains on investments. -- -- -- -- --
- ----------------------------------------------------------------------------------------------------
TOTAL INCOME FROM INVESTMENT OPERATIONS........... -- 0.02 0.05 0.05 0.03
- ----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income............................ -- 0.02 0.05 0.05 0.03
Return of capital................................ -- -- -- -- 0.00/(b)/
- ----------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS............................... -- 0.02 0.05 0.05 0.03
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------
TOTAL RETURN/ (A)/................................ 0.27% 2.24% 4.92% 4.65% 2.79%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)......... $326,072 $547,554 $340,690 $279,622 $250,149
Ratios to average net assets:
Net investment income.......................... 0.32% 2.15% 4.81% 4.58% 2.74%
Net expenses................................... 0.43% 0.45% 0.48% 0.49% 0.49%
Gross expenses................................. 0.47% 0.45% 0.48% 0.49% 0.49%
NOTES TO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(a)Total returns are historical and assume changes in share price, reinvestment
of dividends and capital gains distributions and do not include the effect
of insurance contract charges. Had the adviser not absorbed a portion of the
expense, total returns would have been lower.
(b)Less than $0.01 per share.
See Notes to Financial Statements.
9
Statement of Assets and Liabilities DECEMBER 31, 2009 MONEY
MARKET
FUND
- ------------------------------------------------------------------------------------
ASSETS
Short-term Investments at fair value (cost $325,618,283)............ $325,618,283
Income receivables.................................................. 271,845
Receivable for fund shares sold..................................... 280,171
Other assets........................................................ 140,579
- ------------------------------------------------------------------------------------
TOTAL ASSETS...................................................... 326,310,878
- ------------------------------------------------------------------------------------
LIABILITIES
Payable for fund shares redeemed.................................... 19
Payable to GEAM..................................................... 222,100
Accrued other expenses.............................................. 16,392
- ------------------------------------------------------------------------------------
TOTAL LIABILITIES................................................. 238,511
- ------------------------------------------------------------------------------------
NET ASSETS............................................................ $326,072,367
- ------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital paid in..................................................... 326,260,052
Undistributed (distribution in excess of) net investment income..... --
Accumulated net realized gain (loss)................................ (187,685)
- ------------------------------------------------------------------------------------
NET ASSETS............................................................ $326,072,367
- ------------------------------------------------------------------------------------
NET ASSETS............................................................ 326,072,367
Shares outstanding ($0.01 par value; unlimited shares authorized)..... 326,251,453
Net asset value per share............................................. 1.00
See Notes to Financial Statements.
10
Statement of Operations FOR THE YEAR ENDED DECEMBER 31, 2009 MONEY
MARKET
FUND
- -----------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Interest........................................................... $3,212,003
- -----------------------------------------------------------------------------------
TOTAL INCOME......................................................... 3,212,003
- -----------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees................................... 1,777,218
Transfer agent..................................................... 64
Directors' fees.................................................... 23,696
Custody and accounting expenses.................................... 66,281
Professional fees.................................................. 64,568
Registration expenses.............................................. 9,778
Other expenses..................................................... 55,402
- -----------------------------------------------------------------------------------
TOTAL EXPENSES BEFORE WAIVER AND REIMBURSEMENT....................... 1,997,007
- -----------------------------------------------------------------------------------
Less : Expenses Waived or borne by the adviser..................... (146,262)
- -----------------------------------------------------------------------------------
Net expenses....................................................... 1,850,745
- -----------------------------------------------------------------------------------
NET INVESTMENT INCOME................................................ 1,361,258
- -----------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
REALIZED GAIN ON:
Investments...................................................... 24,246
- -----------------------------------------------------------------------------------
Net realized and unrealized gain on investments.................... 24,246
- -----------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................. $1,385,504
- -----------------------------------------------------------------------------------
See Notes to Financial Statements.
11
Statements of MONEY
Changes in Net Assets MARKET
FUND
- ----------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2009 2008
- ----------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income............................................ $ 1,361,258 $ 9,576,393
Net realized gain (loss) on investments........................... 24,246 (148,062)
- ----------------------------------------------------------------------------------------------------
Net increase from operations...................................... 1,385,504 9,428,331
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment (loss)............................................. (1,362,973) (9,576,393)
- ----------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS................................................. (1,362,973) (9,576,393)
- ----------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions. 22,531 (148,062)
- ----------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS :
Proceeds from sale of shares 97,640,479 397,487,969
Value of distributions reinvested 1,362,974 9,576,393
Cost of shares redeemed........................................... (320,507,263) (200,053,070)
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions................... (221,503,810) 207,011,292
- ----------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS............................. (221,481,279) 206,863,230
NET ASSETS
Beginning of period................................................. 547,553,646 340,690,416
- ----------------------------------------------------------------------------------------------------
End of period....................................................... $ 326,072,367 $ 547,553,646
- ----------------------------------------------------------------------------------------------------
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF)
NET INVESTMENT INCOME, END OF PERIOD................................ $ -- $ 148
- ----------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES
Shares sold........................................................... 97,640,479 397,487,969
Issued for distributions reinvested................................... 1,362,974 9,576,393
Shares redeemed....................................................... (320,507,263) (200,053,070)
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares................................ (221,503,810) 207,011,292
- ----------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
12
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
1. ORGANIZATION OF THE COMPANY
GE Investments Funds, Inc. (the "Company") was incorporated under the laws of
the Commonwealth of Virginia on May 14, 1984 and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Company is composed of fourteen investment
portfolios (collectively the "Funds"), although only the following eleven are
currently being offered: U.S. Equity Fund, S&P 500 Index Fund, Premier Growth
Equity Fund, Core Value Equity Fund, Mid-Cap Equity Fund, Small-Cap Equity
Fund, International Equity Fund, Total Return Fund, Income Fund, Money Market
Fund (the "Fund") and Real Estate Securities Fund.
Shares of the Funds of the Company are offered only to insurance company
separate accounts that fund certain variable life insurance contracts and
variable annuity contracts. These insurance companies may include insurance
companies affiliated with GE Asset Management Incorporated ("GEAM"), the
investment adviser and administrator of each of the Funds.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results may differ from
those estimates.
ACCOUNTING CHANGES
The Financial Accounting Standards Board (FASB) issued FASB Accounting
Standards Codification (ASC) effective for financial statements issued for
interim and annual periods ending after September 15, 2009. The ASC is an
aggregation of previously issued authoritative U.S. generally accepted
accounting principles (GAAP) in one comprehensive set of guidance organized by
subject area. In accordance with the ASC, references to previously issued
accounting standards have been replaced by ASC references. Subsequent revisions
to GAAP will be incorporated into the ASC through Accounting Standards Updates
(ASU).
SUBSEQUENT EVENTS
Subsequent events after the balance sheet date through the date that the
financial statements were issued, have been evaluated in the preparation of the
Financial Statement.
The following summarizes the significant accounting policies of the Fund:
SECURITY VALUATION AND TRANSACTIONS
All portfolio securities of the Money Market Fund of sufficient quality rating
are valued on the basis of amortized cost, which approximates fair value.
If prices are not readily available for a portfolio security, or if it is
believed that a price for a portfolio security does not represent its fair
value, the security may be valued using procedures approved by the Fund's Board
of Directors that are designed to establish its "fair" value. Those procedures
require that the fair value of a security be established by the fair valuation
committee. The fair valuation committee follows different protocols for
different types of investments and circumstances. The fair value procedures may
be used to value any investment by the Fund in the appropriate circumstances.
FAIR VALUE MEASUREMENTS
The Fund adopted ASC 820, Fair Valuation Measurements and Disclosures effective
January 1, 2008. This guidance establishes a new framework for measuring fair
value and expands related disclosures. Broadly, the framework requires fair
value to be determined based on the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction
between market participants. It also establishes a three-level valuation
hierarchy based upon observable and non-observable inputs.
For financial assets and liabilities, fair value is the price the Fund would
receive to sell an asset or pay to transfer a liability in an orderly
transaction with a market participant at the measurement date. In the absence
of active markets for the identical assets or liabilities, such measurements
involve developing assumptions based on market observable data and, in the
absence of such data, internal information that is consistent with what market
participants would use in a hypothetical transaction that occurs at the
measurement date.
13
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
Observable inputs reflect market data obtained from independent sources, while
unobservable inputs reflect our market assumptions. Preference is given to
observable inputs. These two types of inputs create the following fair value
hierarchy:
Level 1--Quoted prices for identical investments in active markets.
Level 2--Quoted prices for similar investments in active markets; quoted
prices for identical or similar investments in markets that are not active;
and model-derived valuations whose inputs are observable or whose
significant value drivers are observable.
Level 3--Significant inputs to the valuation model are unobservable.
Policies and procedures are maintained to value investments using the best and
most relevant data available. In addition, GEAM performs periodic reviews of
the methodologies used by independent pricing services including price
validation of individual securities.
The following section describes the valuation methodologies the Fund uses to
measure different financial investments at fair value.
When available, the Fund uses quoted market prices to determine the fair value
of investment securities, and they are included in Level 1. Level 1 securities
primarily include publicly-traded equity securities.
When quoted market prices are unobservable, pricing information is obtained
from an independent pricing vendor. The pricing vendor uses various pricing
models for each asset class that are consistent with what other market
participants would use. The inputs and assumptions to the model of the pricing
vendor are derived from market observable sources including: benchmark yields,
reported trades, broker/dealer quotes, issuer spreads, benchmark securities,
bids, offers, and other market-related data. Since many fixed income securities
do not trade on a daily basis, the methodology of the pricing vendor uses
available information as applicable such as benchmark curves, benchmarking of
like securities, sector groupings, and matrix pricing. The pricing vendor
considers all available market observable inputs in determining the evaluation
for a security. Thus, certain securities may not be priced using quoted prices,
but rather determined from market observable information. These investments are
included in Level 2 and primarily comprise our portfolio of corporate fixed
income, and government, mortgage and asset-backed securities. In infrequent
circumstances, pricing vendors may provide the Fund with valuations that are
based on significant unobservable inputs, and in those circumstances the
investment securities are included in Level 3.
The Fund uses non-binding broker quotes as the primary basis for valuation when
there is limited, or no, relevant market activity for a specific investment or
for other investments that share similar characteristics. The Fund has not
adjusted the prices obtained. Investment securities priced using non-binding
broker quotes are included in Level 3. As is the case with the primary pricing
vendor, third-party brokers do not provide access to their proprietary
valuation models, inputs and assumptions. Accordingly, GEAM conducts internal
reviews of pricing for all such investment securities periodically to ensure
reasonableness of valuations used in our financial statements. These reviews
are designed to identify prices that appear stale, those that have changed
significantly from prior valuations, and other anomalies that may indicate that
a price may not be accurate. Based on the information available, GEAM believes
that the fair values provided by the brokers are representative of prices that
would be received to sell the assets at the measurement date (exit prices).
Other financial investments are derivative investments that are not reflected
in Total Investments, such as futures, forwards, swaps, and written options
contracts, which are valued based o the unrealized appreciation/depreciation of
the instrument.
The Fund uses closing prices for derivatives included in Level 1, which are
traded either on exchanges or liquid over-the counter markets. Derivative
assets and liabilities included in Level 2 primarily represent interest rate
swaps, cross-currency swaps and foreign currency and commodity forward and
option contracts. Derivative assets and liabilities included in Level 3
primarily represent interest rate products that contain embedded optionality or
prepayment features.
In January 2010, FASB issued ASU 2010-06, Improving Disclosures about Fair
Value Measurements. ASU 2010-06 will require reporting entities to make new
disclosures about the amounts and reasons for significant transfers in and out
of Level 1 and Level 2 fair value measurements and inputs and valuation
techniques used to measure fair value for both recurring and nonrecurring fair
value
14
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
measurements that fall in either Level 2 or Level 3, and information on
purchases, sales, and issuances, and settlements in the roll forward of
activity in Level 3 fair value measures. The new disclosures are effective for
interim and annual reporting periods beginning after December 15, 2009, except
for the disclosures about purchases, sales, issuances, and settlements in the
roll forward of activity in Level 3 fair value measurements. Those disclosures
are effect for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. GEAM does not believe the adoption of ASU
2010-06 will materially impact the financial statement amounts.
The following tables present the funds' investments measured at fair value on a
recurring basis at December 31, 2009:
Level 1 Level 2 Level 3 Total
-----------------------------------------------------------------------
Investments in Securities+ $-- $325,618,283 $-- $325,618,283
Other Financial Instruments+ -- -- -- --
+See Statement of Investments for Industry Classification
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities. For example, money
market securities are valued using amortized cost, in accordance with the
Investment Company Act of 1940. Generally, amortized cost reflects the current
fair value of a security, but since the value is not obtained from a quoted
price in an active market, such securities are reflected as Level 2. Fair value
determinations are required for securities whose value is affected by a
significant event that will materially affect the value of a domestic or
foreign security and which occurs subsequent to the time of the close of the
principal market on which such domestic or foreign security trades but prior to
the calculation of the Fund's NAV.
REPURCHASE AGREEMENTS The Fund may engage in repurchase agreement transactions
with respect to instruments that are consistent with the Fund's investment
objectives or policies. The Fund's Custodian or a third party custodian takes
possession of the collateral pledged for investments in repurchase agreements
on behalf of the Fund. The Fund values the underlying collateral daily on a
mark-to-market basis to determine that the value, including accrued interest,
is at least equal to 102% of the repurchase price. In the event the seller
defaults and the value of the security declines, or if the seller enters an
insolvency proceeding, realization of the collateral by the Fund may be delayed
or limited.
FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the prevailing rates of exchange
on a daily basis (on days the New York Stock Exchange is open). Purchases and
sales of securities, income receipts and expense payments denominated in
foreign currencies are translated into U.S. dollars at the prevailing exchange
rate on the respective dates of such transactions.
The Fund does not isolate the portion of the results of operations resulting
from changes in foreign exchange rates of foreign denominated securities from
the fluctuations arising from changes in the market prices of those securities
during the period. Such fluctuations are included in the net realized or
unrealized gain or loss from investments. Net realized gains or losses on
foreign currency transactions represent net gains or losses on sales and
maturities of foreign currency contracts, disposition of foreign currencies,
the difference between the amount of net investment income and withholding
taxes accrued and the U.S. dollar amount actually received or paid, and gains
or losses between the trade and settlement date on purchases and sales of
securities. Net unrealized foreign exchange gains and losses arising from
changes in the value of other assets and liabilities as a result of changes in
foreign exchange rates are included as increases or decreases in unrealized
appreciation/depreciation on foreign currency related transactions.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
15
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for
federal income tax purposes.
The Fund is subject to ASC 740, Income Taxes. ASC 740 provides guidance for
financial accounting and reporting for the effects of income taxes that result
from an entity's activities during the year. ASC 740 also provides guidance
regarding how certain uncertain tax positions should be recognized, measured,
presented and disclosed in the financial statements. ASC 740 requires
evaluation of tax positions taken or expected to be taken in the course of
preparing the Funds' tax returns to determine whether the tax positions are
"more likely than not" of being sustained by the applicable tax authority.
There are no adjustments to the Funds' net assets required under ASC 740. The
Funds' 2006, 2007, 2008 and 2009 fiscal years tax returns are still open to
examination by the Federal and applicable state tax authorities."
At December 31, 2009, information on the tax cost of investments is as follows:
Net Tax
Appreciation/
(Depreciation)
Net Tax on Undistributed
Appreciation/ Derivatives, Undistributed Long-Term
Cost of Gross Tax Gross Tax (Depreciation) Currency and Income/ Gains Post October
Investments for Unrealized Unrealized on other Net (Accumulated (Accumulated Losses (see
Tax Purposes Appreciation Depreciation Investments Assets Ordinary Loss) Capital Loss) Detail Below)
- -------------------------------------------------------------------------------------------------------------------------------
$325,618,283 -- -- -- -- -- $(187,685) --
As of December 31, 2009, the Fund has capital loss carryovers as indicated
below. Capital loss carryovers are available to offset future realized capital
gains to the extent provided in the Internal Revenue Code and regulations
thereunder. To the extent that these carryover losses are used to offset future
capital gains, it is probable that the gains so offset will not be distributed
to shareholders because they would be taxable as ordinary income.
During the year ended December 31, 2009, the Fund utilized $24,246 of prior
year capital loss carryovers.
Amount Expires
---------------------------------------------------
$39,623 12/31/2010
148,062 12/31/2016
Any net capital and currency losses incurred after October 31, within the
Fund's tax year, are deemed to arise on the first day of the Fund's next tax
year if the Fund so elects to defer such losses.
The Fund incurred no such losses after October 31, 2009.
The tax composition of distributions paid during the years ended December 31,
2009 and December 31, 2008 were as follows:
Long-Term
Ordinary Capital
Income Gains Total
-------------------------------------
2009 $1,362,973 $-- $1,362,973
2008 9,576,393 -- 9,576,393
DISTRIBUTIONS TO SHAREHOLDERS The Fund declares net investment income dividends
daily and pays them monthly. The character of income and gains to be
distributed is determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. Reclassifications due to
permanent book/tax differences are made to the Fund's capital accounts to
reflect income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. These reclassifications have no
impact on net investment income, realized gains or losses, or the net asset
value of the Fund. The calculation of net investment income per share in the
Financial Highlights table excludes these adjustments.
16
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
The reclassifications for the year ended December 31, 2009, were as follows:
Undistributed
Net Investment Paid In
Income Capital
---------------------------------------------------
1,567 (1,567)
INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on
the ex-dividend date, net of applicable withholding taxes, except for certain
foreign corporate actions, which are recorded as soon after ex-dividend date as
such information becomes available. Interest income is recorded on the accrual
basis. All discounts and premiums on bonds are accreted and amortized,
respectively, to call or maturity date, whichever is shorter, using the
effective yield method.
EXPENSES Fund specific expenses are allocated to the Fund that incurs such
expense and pro rata across share classes. Expenses, other than those incurred
by a specific Fund, are allocated pro rata among Funds and share classes. Such
expenses may include custodial fees, legal and accounting fees, printing costs
and registration fees. All expenses of the Fund are paid by GEAM and reimbursed
by the Fund.
3. LINE OF CREDIT
The Company shares a revolving credit facility of up to $150 million with a
number of its affiliates. The credit facility is with its custodian bank, State
Street Bank and Trust Company. The revolving credit facility requires the
payment of a commitment fee equal to 0.15% per annum on the daily unused
portion of the credit facility, payable quarterly. The portion borne by the
Funds generally is borne proportionally based upon net assets. In addition, the
Company has a $100 million uncommitted, unsecured line of credit with State
Street. Generally, borrowings under the credit facilities would accrue interest
at the Federal Funds Rate plus 50 basis points and would be borne by the
borrowing Fund. The maximum amount allowed to be borrowed by any one Fund is
the lesser of (i) its prospectus limitation or (ii) 20% of its net assets. The
credit facilities were not utilized by the Fund during the fiscal year ended
December 31, 2009.
4. AMOUNTS PAID TO AFFILIATES
ADVISORY AND ADMINISTRATION FEES GEAM, a registered investment adviser, was
retained by the Company's Board of Directors effective May 1, 1997 to act as
investment adviser and administrator of the Fund. Compensation of GEAM for
investment advisory and administrative services is paid monthly based on the
average daily net assets of the Fund. The advisory and administrative fee is
stated in the following schedule:
Annualized based on
average daily net assets
----------------------------------------------------
Average Daily Advisory and
Net Assets Administration
of Fund Fees
----------------------------------------------------
Money Market Fund First $100 million .50%
Next $100 million .45%
Next $100 million .40%
Next $100 million .35%
Over $400 million .30%
GENPACT performs certain accounting and certain administration services not
provided by GEAM. For the period ending December 31, 2009, $9,900 was charged
to the Fund.
DIRECTORS' COMPENSATION The Fund pays no compensation to its directors who are
officers or employees of GEAM or its affiliates. Directors who are not such
officers or employees also serve in a similar capacity for other funds advised
by GEAM. Compensation paid to unaffiliated directors are reflected on the
Statement of Operations. These fees are allocated pro rata across all of the
mutual fund platforms and share classes served by the directors, including the
Fund, and are based upon the relative net assets of each fund within such
platforms. (For additional information about directors compensation please
refer to the Statement of Additional Information.)
5. MONEY MARKET FUND GUARANTEE PROGRAM
The GE Investments Money Market Fund participated in the U.S. Treasury
Department's Temporary Guarantee Program for Money Market Funds (the "Program")
through September 18, 2009, the day the Program expired. Under the Program, if
the fund's market value per share dropped below $0.995 on any day while the
Program was in effect and the fund was subsequently liquidated, shareholders of
record on that date who also held shares in the fund on September 19, 2008
would have been eligible to receive a payment from the U.S. Department of
Treasury. No such guarantee event occurred during the term of the Program. The
GE Investments Money Market Fund shareholders incurred $183,195 which increased
the operating expenses by 0.04% for participation in the Program.
17
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the Money Market Fund, a series of
GE Investments Funds, Inc., as of December 31, 2009, and the related statement
of operations for the year then ended, statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of December 31, 2009 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Money Market Fund as of December 31, 2009, the results of its operations,
changes in its net assets and financial highlights for each of the years
described above, in conformity with U.S. generally accepted accounting
principles.
/s/ KPMG LLP
Boston, Massachusetts
February 25, 2010
18
Advisory and Administrative Agreement Renewal (unaudited)
- ---------------------------------------------------------------
The Board of Directors of the GE Investments Funds, Inc. (the "Board"),
including the independent Board members, considered and all those that were
present unanimously approved the continuance of the Fund's Investment Advisory
and Administration Agreement with GE Asset Management Incorporated ("GEAM") at
meetings held on December 4 and December 11, 2009.
In considering whether to approve the Fund's investment advisory agreement, the
Board members considered and discussed a substantial amount of information and
analysis provided, at the Board's request, by GEAM. The Board members also
considered detailed information regarding performance and expenses of other
investment companies, including those with similar investment objectives and
sizes, which was prepared by independent third party providers, Lipper
Analytical Services Inc. ("Lipper") and Morningstar, Inc. ("Morningstar"). The
Board members reviewed the fees charged by GEAM for other mutual funds and
investment products other than mutual funds that employ a similar investment
strategy as the Fund. The Board had the opportunity to ask questions and
request additional information in connection with its considerations.
Before approving the Fund's advisory agreement, the Board members reviewed the
information provided with management of GEAM and with independent legal
counsel. The Board members also reviewed a memorandum prepared by independent
legal counsel discussing the legal standards for the consideration of the
proposed continuance. The independent Board members discussed the proposed
continuance in detail during a private session with their independent legal
counsel at which no representatives of GEAM were present. The independent Board
members and their independent legal counsel requested, and received and
considered, additional information from GEAM following these sessions.
In advance of the meetings, and in response to their request, the Board members
received from GEAM written responses to their inquiries, which included
substantial exhibits and other materials related to GEAM's business and the
services it provides to the Fund. The Board members took into account their
multi-year experience as Board members and particularly their consideration of
these types of agreements in recent years. The information was presented in a
manner to facilitate comparison to prior periods and to reflect certain
enhancements. To focus their review, the Board members asked GEAM management,
in its oral presentation, to highlight material differences from the
information presented in recent years.
During the meetings, the Board members had an opportunity to discuss this
information with GEAM managers, including senior executives, representatives
from the legal, compliance and finance departments, and investment personnel.
The Board members posed questions to these representatives and engaged in
substantive discussions with them concerning GEAM's investment process.
In reaching their determination relating to continuance of the Fund's
investment advisory agreement, the Board members considered all factors that
they deemed relevant, including the factors discussed below. In their
deliberations, the Board members did not identify any particular information
that was all-important or controlling, and each Board member may have
attributed different weights to the various factors. In particular, the Board
members focused on the following:
The Nature, Extent And Quality Of Services Provided.
The Board members reviewed the services provided by GEAM, taking into account
their extensive past experiences with GEAM. They focused on the favorable
attributes of GEAM, including (i) an investment philosophy oriented toward
long-term performance; (ii) effective processes used for selecting investments
and brokers; (iii) effective processes used for providing Fund administration,
including controllership and compliance functions and oversight of the
performance of other companies that provide services to the Fund; (iv) highly
skilled professionals including analysts, research professionals, traders and
portfolio managers with a depth of experience involving the types of Funds they
oversee; (v) access to significant technological resources from which the Fund
may benefit; and (vi) a favorable history and reputation. The Board members
discussed with senior officers of GEAM the personnel changes made, and proposed
to be made, by GEAM. The Board members noted that the Fund represents only a
small portion of the assets managed by GEAM, but benefits from a full array of
services and resources provided by GEAM.
In light of these discussions, the Board, including the independent Board
members, concluded that GEAM's services continue to be satisfactory.
19
Advisory and Administrative Agreement Renewal (unaudited)
- ---------------------------------------------------------------
Investment Performance Of The Fund.
The Board members considered the investment performance of the Fund for various
periods. The Board members reviewed detailed comparisons of the performance of
the Fund with the relevant securities indices and peer groupings of mutual
funds prepared by Lipper and Morningstar with respect to various periods. The
Board members also engaged in detailed discussions with GEAM management about
its investment process and performance results. These discussions focused on
the Fund's investment objective, the number and experience of portfolio
management and supporting research personnel, the investment style and approach
employed and the likely market cycles for the investment style.
The Board, including the independent Board members, concluded that the Fund's
performance was acceptable overall taking into consideration the factors
discussed above.
Cost Of The Services Provided And Profits Realized From The Relationship With
The Fund.
The Board members considered the fees paid to GEAM by the Fund and the cost of
the services provided to the Fund by GEAM. The Board members reviewed the
information they had requested from GEAM concerning its profitability. The
Board members considered the profit margin information for GEAM's investment
company business as a whole, as well as GEAM's profitability data for the Fund.
The Board members reviewed GEAM's assumptions and the methods of cost
allocation used by GEAM in preparing Fund-specific profitability data. The
Board members also discussed with GEAM the basis for its belief that the
methods of allocation used were reasonable for each area of its business.
The Board also considered that GEAM has voluntarily undertaken to reduce its
management fee charged to the Money Market Fund to the extent necessary to
maintain a minimum annualized net yield of 0.00% for the Fund's Class 1 shares.
Information was presented regarding the financial condition of GEAM for various
past periods. The Board members noted and discussed the additional services
provided by GEAM to the Fund compared to other investment products managed by
GEAM, and were provided a study conducted by the Investment Company Institute
that discusses and compares advisory fees and services for mutual funds and
institutional separate accounts. The Board members determined that GEAM should
be entitled to earn a reasonable level of profits for the services it provides
to the Fund. The Board members also recognized that GEAM had made significant
investments in its business and had not fully recovered the sums invested. The
Board also considered that, in the face of overall declining assets and
revenues over the course of the past year, GEAM continues to make a substantial
investment in fulfilling its obligations to the Fund and supporting its
Fund-related activities.
Based on their review, the Board, including the independent members, concluded
that they were satisfied that the level of profitability achieved by GEAM from
its relationship with the Fund was not unreasonable or excessive.
The Extent To Which Economies Of Scale Would Be Realized As The Fund Grows And
Whether Fee Levels Would Reflect Such Economies Of Scale.
The Board members considered the extent to which economies of scale would be
realized as the Fund grows, and whether fee levels reflect these economies of
scale for the benefit of Fund investors. The Board members considered the
substantial infrastructure investments that GEAM has made with respect to its
operations and its commitment to continue investing resources to enhance
services to Fund shareholders. The Board members recognized the benefits to the
Fund of GEAM's past investment in its operations through the expenditure of
sums to support its substantial infrastructure, and that, with respect to all
GEAM managed mutual funds, GEAM has not yet fully recouped that investment. The
Board members reviewed the applicable advisory fee breakpoints for the Fund.
The Board members recognized the economies of scale benefits derived by the
Fund as a result of this fee structure. The Board members also recognized the
benefits to the Fund of being able to leverage a favorable cost structure
achieved with respect to the Fund's other operating expenses as a result of
GEAM's large overall base of assets under management and its vendor management
practices.
Comparison Of Services To Be Rendered And Fees To Be Paid.
The Board members discussed the services provided to the Fund by GEAM, and the
fees charged for those services. The Board members reviewed information
concerning the fee and expense ratios for the Fund, and comparative information
with respect to similar products. They discussed that the Fund's figures were
within the applicable peer group range. In light of the foregoing, the Board,
20
Advisory and Administrative Agreement Renewal (unaudited)
- ---------------------------------------------------------------
including the independent Board members, determined that the advisory fees were
reasonable in relation to the services provided to the Fund.
Fall-Out Benefits.
The Board members considered other actual and potential financial benefits that
GEAM may derive from its relationship with the Fund, including, to the extent
applicable, soft dollar commission benefits generated through Fund portfolio
transactions. The Board members noted, however, that the Fund benefits from the
vast array of resources available through GEAM, and that the Fund represents
only a small portion of the assets managed by GEAM.
Conclusion.
No single factor was determinative to the Board's decision. Based on their
discussion and such other matters as were deemed relevant, the Board, including
the independent Board members, concluded that renewal of the advisory agreement
was in the best interests of the Fund and its shareholders.
21
Additional Information (unaudited)
- ---------------------------------------------------------------
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS:
The business and affairs of the Company are managed under the direction of the
Company's Board of Directors. Information pertaining to the Directors and
officers of the Company is set forth below.
INTERESTED DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
MICHAEL J. COSGROVE
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
POSITION(S) HELD WITH FUND Chairman of the Board and President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS President and Chief Executive
Officer - Mutual Funds and Intermediary Business since March 2007; Executive
Vice President of GEAM from February 1997 to March 2007; Director of GEAM since
1988; Vice President, GE Capital Corporation, an indirect wholly-owned
subsidiary of GE, since December 1999; Executive Vice President - Sales and
Marketing of GEAM, a wholly-owned subsidiary of GE that is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, from
March 1993 to March 2007.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 51
OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE
Funds since 1993, and GE Institutional Funds since its inception; Trustee of
General Electric Savings & Security Trust, General Electric S&S Income Fund,
General Electric S&S Program Mutual Fund ("GE Savings & Security Funds"), Elfun
Funds, General Electric Insurance Plan Trust, General Relief Loan Fund, and
General Electric Pension Trust since 1988; Trustee of Fordham University since
2002; Trustee of GE Volunteers since 1993; Director, GE Asset Management
(Ireland) since February 1999; Director, GE Asset Management Funds Plc., GE
Asset Canada Company, and GE Asset Management Limited since 1998.
- --------------------------------------------------------------------------------
MATTHEW J. SIMPSON
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 48
POSITION(S) HELD WITH FUND Director and Executive Vice President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 2 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President, General
Counsel and Secretary of GEAM since July 2007; Senior Vice President and
General Counsel - Marketing and Client Services (formerly Asset Management
Services), at GEAM and Senior Vice President and General Counsel of GEAMS from
February 1997 to June 2007; Vice President and Associate General Counsel of
GEAM from October 1992 to February 1997; Secretary of Fund from 1997 to June
2007; Vice President of Fund from September 2003 to June 2007; Vice President
of GE Institutional Funds from September 2003 to June 2007; Secretary of GE
Institutional Funds and GE LifeStyle Funds from 1997 to June 2007; Vice
President of Elfun Funds and GE Savings & Security Funds from October 2003 to
June 2007; Assistant Secretary of Elfun Funds and GE Savings & Security Funds
from 1998 to June 2007.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 51
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds, GE Institutional
Funds, Elfun Funds and GE Savings & Security Funds since July 2007.
22
Additional Information (unaudited)
- ---------------------------------------------------------------
- --------------------------------------------------------------------------------
SCOTT H. RHODES
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 49
POSITION(S) HELD WITH FUND Treasurer
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 3 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS GEAM Mutual Funds Operations
Manager since September 2005; Treasurer of GE Institutional Funds, GE LifeStyle
Funds and GE Investments Funds since November 2005 and Elfun Funds and GE
Savings & Security Funds since September 2005; from August 2004 to September
2005 Vice President, U.S. Trust Company, N.A. and Assistant Treasurer of
Excelsior Funds, Inc., Excelsior Funds Trust, and Excelsior Tax Exempt Funds,
Inc.; from January 2004 to August 2004, Vice President BlackRock Financial
Management, Inc.; from December 1996 to November 2003, Controller - Mutual
Funds, American Skandia Investment Services, Inc. and Assistant Treasurer of
American Skandia Trust and American Skandia Advisor Funds, Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
JEANNE M. LAPORTA
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 44
POSITION(S) HELD WITH FUND Vice President and Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 5 years (Vice President); 3 years (Secretary)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Senior Vice President and Deputy
General Counsel at GE Asset Management since October 2007; Vice President and
Associate General Counsel - Marketing and Client Services (formerly Asset
Management Services) at GEAM from May 1997 to October 2007; Vice President and
Assistant Secretary of GE Funds and GE Institutional Funds from September 2003
to July 2007; Vice President and Secretary of GE Funds and GE Institutional
Funds since July 2007; Vice President and Assistant Secretary of Elfun Funds
and GE Savings & Security Funds since October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
23
Additional Information (unaudited)
- ---------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 63
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS General Partner, NGN Capital LLC
since 2006; Managing Director, Vice President of Walden Capital Management
since 1996.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, GE
Institutional Funds since its inception; Trustee of Fordham University from
1989 to 1995 and 2001 to 2007 and Trustee Emeritus since 2007; Trustee of
NeuroScience Research Institute since 1986; Trustee of Gregorian University
Foundation from 1992 to 2007; Director of Artes medical from 2006 to 2008.
- --------------------------------------------------------------------------------
WILLIAM J. LUCAS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 62
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Treasurer of
Fairfield University since 1983.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds since its inception.
- --------------------------------------------------------------------------------
ROBERT P. QUINN
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 74
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon
Brothers Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds since its inception; Trustee, St. Francis Hospital Corp.
- --------------------------------------------------------------------------------
The Statement of Additional Information for the Fund includes additional
information about the Directors and Officers and is available, without charge,
upon request by calling 1-800-493-3042.
24
Investment Team
- ----------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
GE Asset Management Incorporated
BOARD OF DIRECTORS
Michael J. Cosgrove, Chairman
John R. Costantino
William J. Lucas
Robert P. Quinn
Matthew J. Simpson
SECRETARY
Jeanne M. LaPorta
ASSISTANT SECRETARIES
Joseph A. Carucci
Joon Won Choe
Kimberley Costello
Michelle Matzelle
TREASURER
Scott H. Rhodes
ASSISTANT TREASURERS
Scott R. Fuchs
Christopher M. Isaacs
DISTRIBUTOR
GE Investment Distributors, Inc.
Member FINRA and SIPC
COUNSEL
Sutherland, Asbill & Brennan, LLP
CUSTODIAN
State Street Bank & Trust Company
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
OFFICERS OF THE INVESTMENT ADVISER
James W. Ireland, President and Chief Executive Officer
Cheryl H. Beacock, Senior Vice President, Human Resources
Daniel O. Colao, Executive Vice President, Chief Financial Officer
Michael J. Cosgrove, President and Chief Executive Officer - Mutual Funds &
Intermediary Business
Paul M. Colonna, President and Chief Investment Officer - Fixed Income
Investments
Amiel Goldberg, Senior Vice President, Chief Risk Officer
Ralph R. Layman, President and Chief Investment Officer - Public Equity
Investments (since July 2009)
Maureen B. Mitchell, President - Institutional Sales and Marketing (since July
2009)
Matthew J. Simpson, Executive Vice President, General Counsel and Secretary
Judith A. Studer, Chief Market Strategist (since July 2009)
Don W. Torey, President - Alternative Investments
John J. Walker, Executive Vice President, Chief Operating Officer
David Wiederecht, President and Chief Investment Officer - Investment Strategies
25
INVESTMENT ADVISER
GE ASSET MANAGEMENT INCORPORATED
3001 Summer Street
PO Box 7900
Stamford, CT 06904-7900
DISTRIBUTOR
GE INVESTMENT DISTRIBUTORS, INC.
member FINRA and SIPC
3001 Summer Street
PO Box 7900
Stamford, CT 06904-7900
The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission for the first and third quarters of each
fiscal year on Form N-Q. The Fund's Forms N-Q, as well as a description of
the policies and procedures that the Fund uses to determine how to vote
proxies (if any) relating to portfolio securities is available without
charge (i) upon request, by calling 1-800-493-3042; (ii) on the Fund's
website at http://www.geam.com; and (iii) on the Commission's website at
http://www.sec.gov. The Fund's Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC--information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to
portfolio securities during the most recently disclosed 12-month period
ended June 30 is available without charge (i) through the Fund's website at
http://www.geam.com; and (ii) on the Commission's website at
http://www.sec.gov.
[LOGO]
GE
GE Investments Funds, Inc.
Premier Growth Equity Fund
Annual Report
December 31, 2009
[LOGO] GE
GE Investments Funds, Inc.
Premier Growth Equity Fund Contents
- ------------------------------------------------------------
NOTES TO PERFORMANCE.................................... 1
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS.............. 6
NOTES TO SCHEDULE OF INVESTMENTS........................ 8
FINANCIAL STATEMENTS
Financial Highlights................................. 9
Statement of Assets and Liabilities.................. 10
Statement of Operations.............................. 11
Statements of Changes in Net Assets.................. 12
Notes to Financial Statements........................ 13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. 21
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL........... 22
ADDITIONAL INFORMATION.................................. 25
INVESTMENT TEAM......................................... 28
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
Notes to Performance December 31, 2009
- ---------------------------------------------------------------------
Information on the following performance pages relating to the GE Investments
Premier Growth Equity Fund one year total return and Schedule of Investments is
audited. All other information, including the portfolio manager Q&A pages, is
unaudited.
Total returns take into account changes in share price and assume reinvestment
of all dividends and capital gains distributions, if any. Total returns shown
are net of Fund expenses but do not reflect fees and charges associated with
the variable contracts such as administrative fees, account charges and
surrender charges, which, if reflected, would reduce the Fund's total returns
for all periods shown.
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be higher or lower than the performance
data quoted. Periods less than one year are not annualized. Please call
800-493-3042 or visit the Fund's website at http://www.geam.com for the most
recent month-end performance data.
An investment in a Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency. An investment in a Fund is subject to risk, including
possible loss of principal invested.
The Standard & Poor's ("S&P") 500(R) Composite Price Index of stocks (S&P 500
Index) is an unmanaged index and does not reflect the actual cost of investing
in the instruments that comprise the index. The S&P 500 Index is a market
capitalization-weighted index of stocks of 500 large U.S. companies, which is
widely used as a measure of large-cap stock market performance. The results
shown for the foregoing index assume the reinvestment of net dividends or
interest.
The Russell 1000 Growth Index measures the performance of the large-cap growth
segment of the U.S. equity universe. It includes those Russell 1000 companies
with higher price-to-book ratios and higher forecasted growth values.
The peer universe of the underlying annuity funds used in our peer group
average return calculation is based on the blend of Morningstar peer
categories, as shown. Morningstar is an independent mutual fund rating service.
A Fund's performance may be compared to or ranked within a universe of mutual
funds with investment objectives and policies similar but not necessarily
identical to the Fund's.
(C)2009 Morningstar, Inc. All Rights Reserved. The information contained
herein: (1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is no warranted to be accurate, complete
or timely. Neither Morningstar nor its content providers are responsible for
any damage or losses relating from any use of this information. Past
performance is no guarantee or future results.
- --------------
GE Investment Distributors, Inc., Member of FINRA & SIPC, is the principal
underwriter and distributor of the GE Investment Funds, Inc. and a wholly owned
subsidiary of GE Asset Management Incorporated, the investment adviser of the
Fund.
1
Premier Growth Equity Fund
- --------------------------------------------------------------------------------
[PHOTO] David B. Carlson
David B. Carlson is Chief Investment Officer -- U.S. Equities at GE Asset
Management. He manages the overall U.S. equity investments for GE Asset
Management. Mr. Carlson is portfolio manager for the Premier Growth Equity Fund
and has served in that capacity since the Fund's commencement. Mr. Carlson
joined GE Asset Management in 1982 as a securities analyst for investment
operations. He became a Vice President for Mutual Fund Portfolios in 1987, a
Senior Vice President in 1989.
Q. HOW DID THE PREMIER GROWTH EQUITY FUND PERFORM COMPARED TO ITS BENCHMARKS
AND MORNINGSTAR PEER GROUP FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31,
2009?
A. For the twelve-month period ended December 31, 2009, the Premier Growth
Equity Fund returned 38.74% for Class 1 shares and 38.13% for Class 4
shares. The S&P 500 Index and the Russell 1000 Growth Index, the Fund's
benchmarks, returned 26.46% and 37.20% respectively, and the Fund's
Morningstar peer group of 428 US Insurance Large Growth funds returned an
average of 37.15% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE?
A. The U.S. equity markets fell sharply through early March against a backdrop
of severe global economic recession, but picked up again as clarity emerged
in the U.S. financial sector with the resolution of the government bank
stress tests and improving credit markets. From its March 9th intraday low
of 666, the S&P 500 rallied 67% into year end. Despite this prodigious
snap-back, the S&P 500 still remained 29% below the high it reached in
October, 2007 -- following the near-collapse of the U.S. financial system
after the housing-debt bubble burst. Unprecedented fiscal and monetary
stimulus fueled this year's stock market recovery. The federal funds target
rate has remained historically low -- close to zero -- for a full year, and
the U.S. equity markets have applauded the Federal Reserve's pledge to keep
interest rates low for an "extended period."
Sector allocation has been important in this environment, as only three
sectors outperformed the S&P 500 in 2009: technology (+62%), materials
(+49%), and consumer discretionary (+42%). The more defensive sectors
lagged. Despite a 78% rise in the WTI crude price over the year, the S&P 500
energy sector rose only 14% in 2009, well below the 26.5% rally of the
broader S&P 500 Index. In this context, the growth style of investing
outperformed the value style, with the strongest returns among medium
capitalization companies.
Careful stock selection was warranted in the financials sector, which
plummeted 29% in the first quarter but advanced a whopping 140% off of March
lows, reflecting relief that the sector would remain intact. Going forward,
we do not expect the markets to simply reward survivorship with performance.
Earnings estimate achievability should matter more prospectively, and that
is why we have continued to focus on quality (e.g., free cash flow, market
share and balance sheet strength) in our investment strategies.
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE?
A. The Fund was well positioned to take advantage of the recovery rally. During
the course of the year, the Fund benefited from overweights in information
technology and consumer discretionary as these sectors outperformed. Liberty
Media (+94%) skyrocketed on the news of its merger with DirecTV, and was the
top-contributing stock for the year.
The Fund also navigated the volatile financials stocks well, with strong
stock selection among some of the areas at the epicenter of the credit
crisis: the banks, real estate and capital markets companies. Strong rallies
in CB Richard Ellis (+214%), Goldman Sachs (+103%) and CME Group (Chicago
Mercantile Exchange +64%) drove outperformance, enabling our financials
holdings to return 56% versus a 17% gain
2
- --------------------------------------------------------------------------------
[GRAPHIC]
for the S&P 500 sector. Another key performance driver was relative strength
in our energy holdings (+66% versus a 14% gain for the S&P 500 sector).
Emphasizing oil services companies over the lagging exploration and
production and large integrated oil companies helped the Fund the most, amid
weak end market demand for fossil fuels during the year. The visible
pipelines for oil services projects benefited Transocean (+75%) and
Schlumberger (+56%).
On a sector level, materials was the only sector to detract from
performance. The Fund missed the rally in selected chemicals and
metals/mining stocks during the course of the year, and our sole materials
holding, Monsanto (+17%), underperformed many of its peers. Our Premier
Growth process prefers companies with sustainable earnings growth profiles
as opposed to the more cyclical patterns characteristic of most materials
and industrial companies. In terms of single stock detractors in a generally
strong period of stock selection, Amgen (-2%), Comcast (+1%), Iron Mountain
(-8%), Gilead (-15%) and Aflac (+4%) tempered the Fund's outperformance.
Q. WERE THERE ANY SIGNIFICANT CHANGES TO THE FUND OVER THE PERIOD?
A. We consistently employed our bottom-up process of seeking high quality
stocks that we believe can generate double-digit earnings growth throughout
the year. We ended the period with 35 stocks in the portfolio, consistent
with our history. The portfolio's largest sector weighting remains
technology at approximately 31% of the portfolio. Some of corporate
America's strongest balance sheets are in the tech sector, with companies
such as Microsoft, Qualcomm, and Cisco holding extremely large cash balances
and little to no debt. During the year we were nimble in the financials
sector, adding to our exposure when valuations looked most depressed early
in the year, becoming overweight by mid-year as signs of healing emerged in
the credit markets. We then trimmed our financials holdings into strength in
the back half of the year, becoming slightly underweight versus the S&P 500
(though still overweight the Russell 1000 Growth Index) by December 31. The
portfolio remains overweight in consumer discretionary (primarily media and
retail) and underweight the S&P 500 in energy, although we will likely add
to this sector when we see signs of a better economy.
3
Premier Growth Equity Fund
- --------------------------------------------------------------------------------
Understanding Your Fund's Expenses
As a shareholder of the Fund you incur ongoing expenses, which include
portfolio management fees, professional fees, administrative fees and other
Fund expenses. The following example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors during the period. The information in the
following table is based on an investment of $1,000, which is invested at the
beginning of the period and held for the entire six-month period ended
December 31, 2009.
ACTUAL EXPENSES
The first section of the table provides information about actual account values
and actual expenses. You may use the information in this section, together with
the amount you invested, to estimate the expenses that you paid over the
period. To do so, simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and
an assumed rate of return of 5% per year before expenses, which is not the
Fund's actual return. You may use this information to compare the ongoing costs
of investing in the Fund and other funds. To do so, compare this 5%
hypothetical example with the 5% hypothetical examples that appear in the
shareholders reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2009 - DECEMBER 31, 2009
- ----------------------------------------------------------------------------------------
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID
BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) DURING THE PERIOD ($)*
- ----------------------------------------------------------------------------------------
ACTUAL FUND RETURN**
- ----------------------------------------------------------------------------------------
Class 1 $1,000.00 $1,179.82 4.94
Class 4 $1,000.00 $1,177.22 7.35
- ----------------------------------------------------------------------------------------
HYPOTHETICAL 5% RETURN (2.5% FOR THE PERIOD)
- ----------------------------------------------------------------------------------------
Class 1 $1,000.00 $1,020.46 4.58
Class 4 $1,000.00 $1,018.29 6.82
- ----------------------------------------------------------------------------------------
*Expenses are equal to the Fund's annualized expense ratio of 0.90% for Class 1
Shares and 1.34% for Class 4 Shares (for the period July 1, 2009--December 31,
2009), multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period)
**Actual Fund Returns for the six-month period ended December 31, 2009 were as
follows: 17.98% for Class 1 shares, and 17.72% for Class 4 shares.
4
Premier Growth Equity Fund
- --------------------------------------------------------------------------------
CHANGE IN VALUE OF A $10,000 INVESTMENT
CLASS 1 SHARES
- --------------------------------------------------------------------------------
[CHART]
Premier Growth Equity Fund S&P 500 Index Russell 1000 Growth
-------------------------- -------------- -------------------
31-Dec-99 10,000.00 10,000.00 10,000.00
1-Dec-00 9,477.07 9,081.65 7,758.30
1-Dec-01 8,610.99 7,999.85 6,174.98
1-Dec-02 6,801.38 6,231.73 4,454.25
1-Dec-03 8,767.94 8,021.99 5,780.02
1-Dec-04 9,384.45 8,894.89 6,143.80
1-Dec-05 9,505.72 9,332.39 6,467.26
1-Dec-06 10,367.78 10,806.20 7,055.25
1-Dec-07 10,921.03 11,400.06 7,889.66
1-Dec-08 6,917.64 7,182.28 4,856.81
1-Dec-09 9,597.64 9,083.04 6,663.59
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 2009
- --------------------------------------------------------------------------------
CLASS 1 SHARES (Inception date: 12/12/97)
- --------------------------------------------------------------------------------
ONE FIVE TEN ENDING VALUE OF A
YEAR YEAR YEAR $10,000 INVESTMENT
-----------------------------------------------------------------------
Premier Growth Equity Fund 38.74% 0.45% -0.41% $9,598
-----------------------------------------------------------------------
S&P 500 Index 26.46% 0.42% -0.96% $9,083
-----------------------------------------------------------------------
Russell 1000 Growth Index 37.20% 1.64% -3.98% $6,664
-----------------------------------------------------------------------
Morningstar peer group average* 37.15% 1.03% -2.58%
-----------------------------------------------------------------------
CLASS 4 SHARES
- --------------------------------------------------------------------------------
[GRAPHIC]
Premier Growth Equity Fund S&P 500 Index Russell 1000 Growth
------------------------- ------------- -------------------
1-May-08 10,000.00 10,000.00 10,000.00
1-Jun-08 9,351.76 9,275.57 9,619.62
1-Sep-08 8,800.31 8,499.21 8,433.61
1-Dec-08 6,350.73 6,634.20 6,511.85
1-Mar-09 6,203.38 5,903.65 6,243.51
1-Jun-09 7,451.70 6,844.05 7,262.46
1-Sep-09 8,406.70 7,912.13 8,277.02
1-Dec-09 8,772.32 8,389.91 8,934.32
- --------------------------------------------------------------------------------
TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 2009
- --------------------------------------------------------------------------------
CLASS 4 SHARES (Inception date: 5/1/08)
- --------------------------------------------------------------------------------
ONE SINCE ENDING VALUE OF A
YEAR INCEPTION $10,000 INVESTMENT
---------------------------------------------------------------------
Premier Growth Equity Fund 38.13% -7.54% $8,772
---------------------------------------------------------------------
S&P 500 Index 26.46% -9.99% $8,390
---------------------------------------------------------------------
Russell 1000 Growth Index 37.20% -6.53% $8,934
---------------------------------------------------------------------
Morningstar peer group average** 37.15%
---------------------------------------------------------------------
[GRAPHIC]
INVESTMENT PROFILE
A Mutual Fund designed for investors who seek long-term growth
of capital and future income rather than current income by
investing at least 80% of its net assets in common and preferred
stocks and other types of equity securities under normal
circumstances. The Fund invests primarily in a limited number of
large-and medium-sized companies (meaning companies with a
market capitalization of $1 billion or more) that the portfolio
manager believes have above-average growth histories and/or
growth potential.
PORTFOLIO COMPOSITION AS OF DECEMBER 31, 2009
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $47,004 (in thousands)
[CHART]
Information Technology 34.1%
Consumer Discretionary 16.7%
Healthcare 14.7%
Financials 14.2%
Energy 6.4%
Consumer Staples 4.0%
Materials 3.1%
Industrials 3.0%
Telecommunication Services 3.0%
Short-Term 0.8%
Other Investments 0.0%***
TOP TEN LARGEST HOLDINGS
AS OF DECEMBER 31, 2009
as a % of Market Value
--------------------------------------
QUALCOMM Inc. 4.57%
--------------------------------------
The Western Union Co. 4.22%
--------------------------------------
Amgen Inc. 4.05%
--------------------------------------
CME Group Inc. 4.02%
--------------------------------------
PepsiCo, Inc. 3.95%
--------------------------------------
Bed Bath & Beyond, Inc. 3.82%
--------------------------------------
Schlumberger Ltd. 3.73%
--------------------------------------
DIRECTV (Class A) 3.60%
--------------------------------------
Intuit, Inc. 3.56%
--------------------------------------
Liberty Global, Inc. (Series C) 3.47%
--------------------------------------
* Morningstar performance comparisons are based on average annual total returns
for the one year, five-year, and ten-year periods indicated in the Large
Growth peer group consisting of 428, 338 and 164 underlying annuity funds,
respectively.
**Morningstar performance comparisons are based on average annual total returns
for the one year period indicated in the Large Growth peer group consisting
of 428 underlying annuity funds.
***Less than 0.1%.
See Notes to Performance on page 1 for further information, including an
explanation of Morningstar peer categories.
Past performance does not predict future performance and the graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
5
PREMIER GROWTH EQUITY FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
PREMIER GROWTH EQUITY FUND
NUMBER
OF SHARES VALUE
COMMON STOCK -- 96.0%+
---------------------------------------------------------------
BEVERAGES -- 3.8%
PepsiCo, Inc.................. 30,576 $ 1,859,021
BIOTECHNOLOGY -- 5.7%
Amgen Inc..................... 33,633 1,902,619 /(a)/
Gilead Sciences, Inc.......... 19,569 846,946 /(a)/
2,749,565
CAPITAL MARKETS -- 6.0%
State Street Corp............. 34,856 1,517,630 /(c)/
The Goldman Sachs Group, Inc.. 8,194 1,383,475
2,901,105
CHEMICALS -- 3.0%
Monsanto Co................... 17,856 1,459,728
COMMERCIAL SERVICES & SUPPLIES -- 2.1%
Iron Mountain Inc............. 44,641 1,016,029 /(a)/
COMMUNICATIONS EQUIPMENT -- 9.5%
Cisco Systems, Inc............ 65,432 1,566,442 /(a,d)/
QUALCOMM Inc.................. 46,475 2,149,934
Research In Motion Ltd........ 13,453 908,615 /(a)/
4,624,991
DIVERSIFIED FINANCIAL SERVICES -- 3.9%
CME Group Inc................. 5,626 1,890,055
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 2.5%
Corning Inc................... 59,317 1,145,411
Molex Inc. (Class A).......... 3,669 70,188
1,215,599
ENERGY EQUIPMENT & SERVICES -- 6.2%
Schlumberger Ltd.............. 26,907 1,751,377
Transocean Ltd................ 15,288 1,265,846 /(a)/
3,017,223
HEALTHCARE EQUIPMENT & SUPPLIES -- 2.8%
Medtronic, Inc................ 31,187 1,371,604
HEALTHCARE PROVIDERS & SERVICES -- 5.8%
Express Scripts, Inc.......... 12,230 1,057,284 /(a)/
Lincare Holdings Inc.......... 28,130 1,044,186 /(a)/
VCA Antech, Inc............... 28,130 701,000 /(a)/
2,802,470
NUMBER
OF SHARES VALUE
HOTELS RESTAURANTS & LEISURE -- 1.5%
Carnival Corp.......................... 22,626 $ 717,018 /(a)/
INSURANCE -- 2.3%
AFLAC Inc.............................. 23,849 1,103,016
INTERNET SOFTWARE & SERVICES -- 3.3%
Baidu, Inc ADR......................... 1,295 532,543 /(a)/
eBay Inc............................... 46,475 1,094,022 /(a)/
1,626,565
IT SERVICES -- 9.2%
Paychex, Inc........................... 32,410 993,042
The Western Union Co................... 105,181 1,982,662
Visa, Inc. (Class A)................... 17,122 1,497,490
4,473,194
MACHINERY -- 3.0%
Dover Corp............................. 34,856 1,450,358
MEDIA -- 8.2%
Comcast Corp. (Class A)................ 43,418 695,122
DIRECTV (Class A)...................... 50,756 1,692,713 /(a)/
Liberty Global, Inc. (Series C)........ 74,605 1,630,119 /(a)/
4,017,954
REAL ESTATE MANAGEMENT & DEVELOPMENT -- 1.6%
CB Richard Ellis Group, Inc. (Class A). 58,094 788,336 /(a)/
SOFTWARE -- 6.3%
Intuit, Inc............................ 54,425 1,671,392 /(a,d)/
Microsoft Corp......................... 45,252 1,379,733 /(d)/
3,051,125
SPECIALTY RETAIL -- 6.4%
Bed Bath & Beyond, Inc................. 46,475 1,795,329 /(a)/
Lowe's Companies, Inc.................. 56,259 1,315,898
3,111,227
WIRELESS TELECOMMUNICATION SERVICES -- 2.9%
American Tower Corp. (Class A)......... 32,410 1,400,436 /(a)/
TOTAL COMMON STOCK
(COST $45,185,742).................... 46,646,619
----------------------------------------------------------------------
OTHER INVESTMENTS -- 0.0%*
----------------------------------------------------------------------
GEI Investment Fund
(COST $4,048)......................... 3,077 /(e)/
TOTAL INVESTMENTS IN SECURITIES
(COST $45,189,790).................... 46,649,696
See Notes to Schedules of Investments on page 8 and Notes to Financial
Statements on page 13.
6
PREMIER GROWTH EQUITY FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
NUMBER
OF SHARES VALUE
SHORT-TERM INVESTMENTS -- 0.7%
--------------------------------------------------------------------
GE Money Market Fund Institutional
Class 0.01%
(COST $354,654)..................... $ 354,654 /(b,f)/
TOTAL INVESTMENTS
(COST $45,544,444).................. 47,004,350
OTHER ASSETS AND LIABILITIES, NET --
3.3%................................ 1,624,391
-----------
NET ASSETS -- 100.0%................. $48,628,741
===========
--------------------------------------------------------------------
OTHER INFORMATION
--------------------------------------------------------------------
The GEI Premier Growth Equity had the following long futures contracts open at
December 31, 2009:
NUMBER CURRENT
EXPIRATION OF NOTIONAL UNREALIZED
DESCRIPTION DATE CONTRACTS VALUE (DEPRECIATION)
------------------------------------------------------------
S&P 500 EMini
Index Futures March 2010 13 $721,955 $(8,796)
See Notes to Schedules of Investments on page 8 and Notes to Financial
Statements on page 13.
7
Notes to Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
The views expressed in this document reflect our judgment as of the publication
date and are subject to change at any time without notice. The securities cited
may not represent current or future holdings and should not be considered as a
recommendation to purchase or sell a particular security. See the prospectus
for complete descriptions of investment objectives, policies, risks and
permissible investments.
(a)Non-income producing security.
(b)Coupon amount represents effective yield.
(c)State Street Corp. is the parent company of State Street Bank & Trust Co.,
the Fund's custodian and accounting agent.
(d)At December 31, 2009, all or a portion of this security was pledged to cover
collateral requirements for futures, options, forward foreign currency
contracts and/or TBA's.
(e)GE Asset Management Incorporated (GEAM) is the investment advisor of the
Fund and also serves as investment advisor of the GEI Investment Fund.
(f)GEAM, the investment adviser of the Fund, also serves as investment adviser
of the GE Funds-GE Money Market Fund.
* Less than 0.1%.
+ Percentages are based on net assets as of December 31, 2009.
Abbreviations:
ADR American Depository Receipt
TBA To be Announced
8
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
================================================================================
PREMIER GROWTH EQUITY FUND
-------------------------------------------------------- ----------------------------
CLASS 1 CLASS 4
------------------------------------------------------- ----------------------------
12/31/09 12/31/08 12/31/07 12/31/06 12/31/05 12/31/09 12/31/08
-------- --------- -------- -------- --------- - -------- ---------
INCEPTION DATE -- -- -- -- 12/12/97 -- 5/1/08
Net asset value, beginning of period. $ 46.49 $ 78.95 $ 82.17 $ 75.65 $ 74.95 $ 46.55 $ 78.52
INCOME/(LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income (loss)....... 0.20 0.30 0.23 0.35 0.24 (0.16) 0.02**
Net realized and unrealized
gains/(losses) on investments..... 17.81 (29.32) 4.19 6.51 0.73 17.91 (28.75)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM
INVESTMENT OPERATIONS............... 18.01 (29.02) 4.42 6.86 0.97 17.75 (28.73)
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.............. 0.20 0.26 0.23 0.34 0.27 0.00 0.06
Return of Capital.................. -- 0.01 -- -- -- -- 0.01
Net realized gains................. 0.00 3.17 7.41 -- -- 0.00 3.17
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS.................. 0.20 3.44 7.64 0.34 0.27 0.00 3.24
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period....... $ 64.30 $ 46.49 $ 78.95 $ 82.17 $ 75.65 $ 64.30 $ 46.55
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN/(A)/.................... 38.74% (36.66)% 5.34% 9.07% 1.29% 38.13% (36.49)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands).................... $48,620 $ 43,308 $94,720 $110,538 $ 126,682 $ 9 $ 6
Ratios to average net assets:
Net investment income............ 0.33% 0.36% 0.24% 0.41% 0.30% -0.12% 0.05%*
Expenses......................... 0.90%/(b)/ 0.76%/(b)/ 0.72% 0.71% 0.71% 1.35%/(b)/ 1.21%/(b)/*
Portfolio turnover rate.......... 18% 23% 29% 27% 34% 18% 23%
NOTES TO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(a)Total returns are historical and assume changes in share price, reinvestment
of dividends and capital gains distributions and do not include the effect
of insurance contract charges.
(b)Reflects GEAM's waiver of a portion of the Fund's management fee in an
amount equal to the management fee earned by GEAM with respect to the Fund's
investment in the GE Funds - GE Money Market Fund. Excluding waiver, the
expense ratios would be unchanged.
* Annualized for periods less than one year.
**Per share values have been calculated using the average share method.
See Notes to Financial Statements.
9
Statement of Assets PREMIER
and Liabilities DECEMBER 31, 2009 GROWTH
EQUITY FUND
- -------------------------------------------------------------------------------
ASSETS
Investments in securities, at market (cost $45,185,742)......... $46,646,619
Investments in affiliated securities, at market (cost $4,048)... 3,077
Short-term affiliated investments (at amortized cost)........... 354,654
Receivable for investments sold................................. 1,721,633
Income receivables.............................................. 21,063
Receivable for fund shares sold................................. 2,313
Other assets.................................................... 5,251
- -------------------------------------------------------------------------------
TOTAL ASSETS.................................................. 48,754,610
- -------------------------------------------------------------------------------
LIABILITIES
Payable for fund shares redeemed................................ 843
Payable to GEAM................................................. 26,725
Accrued other expenses.......................................... 90,891
Variation margin payable........................................ 7,410
- -------------------------------------------------------------------------------
TOTAL LIABILITIES............................................. 125,869
- -------------------------------------------------------------------------------
NET ASSETS........................................................ $48,628,741
- -------------------------------------------------------------------------------
NET ASSETS CONSIST OF :
Capital paid in................................................. 53,791,563
Undistributed (distribution in excess of) net investment income. --
Accumulated net realized gain (loss)............................ (6,613,932)
Net unrealized appreciation/ (depreciation) on:
Investments................................................... 1,459,906
Futures....................................................... (8,796)
- -------------------------------------------------------------------------------
NET ASSETS........................................................ $48,628,741
- -------------------------------------------------------------------------------
CLASS 1:
NET ASSETS........................................................ 48,619,969
Shares outstanding ($0.01 par value; unlimited shares authorized). 756,160
Net asset value per share......................................... $64.30
CLASS 4:
NET ASSETS........................................................ 8,772
Shares outstanding ($0.01 par value; unlimited shares authorized). 136
Net asset value per share......................................... $64.30
See Notes to Financial Statements.
10
Statement of Operations PREMIER
FOR THE YEAR ENDED DECEMBER 31, 2009 GROWTH
EQUITY FUND
--------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend........................................... $440,923
Interest........................................... 108,352
Interest from affliated investments................ 3,367
--------------------------------------------------------------------
TOTAL INCOME......................................... 552,642
--------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees................... 292,633
Distributors Fees (Notes 4)
Class 4.......................................... 33
Transfer agent..................................... 17,965
Directors' fees.................................... 1,080
Custody and accounting expenses.................... 51,778
Professional fees.................................. 21,817
Registration expenses.............................. 3,994
Other expenses..................................... 16,442
--------------------------------------------------------------------
TOTAL EXPENSES BEFORE WAIVER AND REIMBURSEMENT....... 405,742
--------------------------------------------------------------------
Less: Expenses reimbursed by the adviser........... (2,672)
--------------------------------------------------------------------
Net expenses....................................... 403,070
--------------------------------------------------------------------
NET INVESTMENT INCOME................................ 149,572
--------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments...................................... (4,737,697)
Futures.......................................... 70,916
INCREASE IN UNREALIZED APPRECIATION ON:
Investments...................................... 19,092,205
Futures.......................................... 267
--------------------------------------------------------------------
Net realized and unrealized gain on investments.... 14,425,691
--------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS. $14,575,263
--------------------------------------------------------------------
See Notes to Financial Statements.
11
Statements of PREMIER
Changes in Net Assets GROWTH
EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2009 2008
- ------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income................................................................... $ 149,572 $ 262,873
Net realized gain (loss) on investments and futures...................................... (4,666,781) 745,786
Net increase (decrease) in unrealized appreciation / (depreciation) on investments and
futures................................................................................ 19,092,472 (29,818,290)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations.................................................. 14,575,263 (28,809,631)
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM :
Net investment income
Class 1................................................................................ (153,151) (222,187)
Class 4................................................................................ -- (7)
Return of Capital
Class 1................................................................................ -- (11,151)
Class 4................................................................................ -- (2)
Net realized gains
Class 1................................................................................ -- (2,751,709)
Class 4................................................................................ -- (404)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS........................................................................ (153,151) (2,985,460)
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions........................ 14,422,112 (31,795,091)
- ------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS :
Proceeds from sale of shares
Class 1................................................................................ 713,200 1,952,543
Class 4................................................................................ -- 10,000
Value of distributions reinvested
Class 1................................................................................ 153,151 2,985,047
Class 4................................................................................ -- 413
Cost of shares redeemed
Class 1................................................................................ (9,973,949) (24,559,128)
Class 4................................................................................ -- --
- ------------------------------------------------------------------------------------------------------------------------
Net (decrease) from share transactions................................................... (9,107,598) (19,611,125)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS.................................................... 5,314,514 (51,406,216)
NET ASSETS
Beginning of period........................................................................ 43,314,227 94,720,443
- ------------------------------------------------------------------------------------------------------------------------
End of period.............................................................................. $48,628,741 $ 43,314,227
- ------------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF)
NET INVESTMENT INCOME, END OF PERIOD....................................................... $ -- $ --
- ------------------------------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES
CLASS 1
Shares sold.................................................................................. 13,169 28,477
Issued for distributions reinvested.......................................................... 2,361 65,620
Shares redeemed.............................................................................. (190,965) (362,227)
- ------------------------------------------------------------------------------------------------------------------------
Net (decrease) in fund shares................................................................ (175,435) (268,130)
- ------------------------------------------------------------------------------------------------------------------------
CLASS 4
Shares sold.................................................................................. -- 127
Issued for distributions reinvested.......................................................... -- 9
Shares redeemed.............................................................................. -- --
- ------------------------------------------------------------------------------------------------------------------------
Net increase in fund shares.................................................................. -- 136
- ------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
12
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
1. ORGANIZATION OF THE COMPANY
GE Investments Funds, Inc. (the "Company") was incorporated under the laws of
the Commonwealth of Virginia on May 14, 1984 and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Company is composed of fourteen investment
portfolios (collectively the "Funds"), although only the following eleven are
currently being offered: U.S. Equity Fund, S&P 500 Index Fund, Premier Growth
Equity Fund (the "Fund"), Core Value Equity Fund, Mid-Cap Equity Fund,
Small-Cap Equity Fund, International Equity Fund, Total Return Fund, Income
Fund, Money Market Fund and Real Estate Securities Fund.
Shares of the Funds of the Company are offered only to insurance company
separate accounts that fund certain variable life insurance contracts and
variable annuity contracts. These insurance companies may include insurance
companies affiliated with GE Asset Management Incorporated ("GEAM"), the
investment adviser and administrator of each of the Funds.
The Company offers two share classes (Class 1 and Class 4) of the Fund as
investment options for variable life insurance and variable annuity contracts.
Class 4 shares were first offered on May 1, 2008, and Fund shares outstanding
prior to May 1, 2008 were designated as Class 1 shares. Each share class has
different fees and expenses, and as a result, each share class will have
different share price and performance. Not all variable contracts offer both
share classes of the Fund.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results may differ from
those estimates.
ACCOUNTING CHANGES
The Financial Accounting Standards Board (FASB) issued FASB Accounting
Standards Codification (ASC) effective for financial statements issued for
interim and annual periods ending after September 15, 2009. The ASC is an
aggregation of previously issued authoritative U.S. generally accepted
accounting principles (GAAP) in one comprehensive set of guidance organized by
subject area. In accordance with the ASC, references to previously issued
accounting standards have been replaced by ASC references. Subsequent revisions
to GAAP will be incorporated into the ASC through Accounting Standards Updates
(ASU).
SUBSEQUENT EVENTS
Subsequent events after the balance sheet date through the date that the
financial statements were issued have been evaluated in the preparation of the
Financial Statement.
The following summarizes the significant accounting policies of the Fund:
SECURITY VALUATION AND TRANSACTION
The Fund's portfolio securities are valued generally on the basis of market
quotations. Equity securities generally are valued at the last reported sales
price on the primary market in which they are traded. Portfolio securities
listed on NASDAQ are valued using the NASDAQ Official Closing Price, which may
not necessarily represent the last sale price. If no sales occurred on the
exchange or NASDAQ that day, the portfolio security generally is valued using
the last reported bid price.
Debt securities (other than short-term securities described below) generally
are valued at an evaluated bid as reported by an independent pricing service.
Values obtained from pricing services are based on recent trading activity and
other relevant information which may include market interest rate curves,
referenced credit spreads and estimated prepayment rates where applicable. In
the absence of a reliable price from such a pricing service, debt securities
may be valued based on dealer supplied valuations or quotations. The Fund's
written or purchased options are valued at the last sales price, or if no sales
occurred that day, at the last reported bid price. Short-term investments of
sufficient credit quality with remaining maturities of sixty days or less at
the time of purchase are valued on the basis of amortized cost, which
approximates market value.
All assets and liabilities of the Fund that are initially expressed in foreign
currency values will be converted into U.S. dollars at the WM/Reuters exchange
rate computed at 11:00 a.m., Eastern time.
13
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
If prices are not readily available for a portfolio security, or if it is
believed that a price for a portfolio security does not represent its fair
value, the security may be valued using procedures approved by the Fund's Board
of Directors that are designed to establish its "fair" value.
Foreign securities may be valued with the assistance of an independent fair
value pricing service in circumstances where it is believed that they have been
or would be materially affected by events occurring after the close of the
portfolio security's primary market and before the close of regular trading on
the NYSE. This independent fair value pricing service uses a computerized
system to appraise affected securities and portfolios taking into consideration
various factors and the fair value of such securities may be something other
than the last available quotation or other market price.
GEAM may also separately monitor portfolio securities and, consistent with the
Fund's fair value procedures, apply a different value to a portfolio security
than would be applied had it been priced using market quotations or by an
independent fair value pricing service.
Determining the fair value of securities involves the application of both
subjective and objective considerations. Security values may differ depending
on the methodology used to determine their values, and may differ from the last
quoted sale or closing price. No assurance can be given that use of these fair
value procedures will always better represent the price at which the Fund could
sell the affected portfolio security.
Security transactions are accounted for as of the trade date. Realized gains
and losses on investments sold are recorded on the basis of identified cost for
both financial statement and federal tax purposes.
FAIR VALUE MEASUREMENTS
The Fund adopted ASC 820, Fair Valuation Measurements and Disclosures effective
January 1, 2008. This guidance establishes a new framework for measuring fair
value and expands related disclosures. Broadly, the framework requires fair
value to be determined based on the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction
between market participants. It also establishes a three-level valuation
hierarchy based upon observable and non-observable inputs.
For financial assets and liabilities, fair value is the price the Fund would
receive to sell an asset or pay to transfer a liability in an orderly
transaction with a market participant at the measurement date. In the absence
of active markets for the identical assets or liabilities, such measurements
involve developing assumptions based on market observable data and, in the
absence of such data, internal information that is consistent with what market
participants would use in a hypothetical transaction that occurs at the
measurement date.
Observable inputs reflect market data obtained from independent sources, while
unobservable inputs reflect our market assumptions. Preference is given to
observable inputs. These two types of inputs create the following fair value
hierarchy:
Level 1--Quoted prices for identical investments in active markets.
Level 2--Quoted prices for similar investments in active markets; quoted
prices for identical or similar investments in markets that are not active;
and model-derived valuations whose inputs are observable or whose
significant value drivers are observable.
Level 3--Significant inputs to the valuation model are unobservable.
Policies and procedures are maintained to value investments using the best and
most relevant data available. In addition, GEAM performs periodic reviews of
the methodologies used by independent pricing services including price
validation of individual securities.
The following section describes the valuation methodologies the Fund uses to
measure different financial investments at fair value.
When available, the Fund uses quoted market prices to determine the fair value
of investment securities, and they are included in Level 1. Level 1 securities
primarily include publicly-traded equity securities.
When quoted market prices are unobservable, pricing information is obtained
from an independent pricing vendor. The pricing vendor uses various pricing
models for each asset class that are consistent with what other market
participants would use. The inputs and assumptions to the model of the pricing
vendor are derived from market observable sources including: benchmark yields,
reported trades, broker/dealer quotes, issuer spreads, benchmark securities,
bids, offers, and other market-related data. Since
14
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
many fixed income securities do not trade on a daily basis, the methodology of
the pricing vendor uses available information as applicable such as benchmark
curves, benchmarking of like securities, sector groupings, and matrix pricing.
The pricing vendor considers all available market observable inputs in
determining the evaluation for a security. Thus, certain securities may not be
priced using quoted prices, but rather determined from market observable
information. These investments are included in Level 2 and primarily comprise
our portfolio of corporate fixed income, and government, mortgage and
asset-backed securities. In infrequent circumstances, pricing vendors may
provide the Fund with valuations that are based on significant unobservable
inputs, and in those circumstances the investment securities are included in
Level 3.
The Fund uses non-binding broker quotes as the primary basis for valuation when
there is limited, or no, relevant market activity for a specific investment or
for other investments that share similar characteristics. The Fund has not
adjusted the prices obtained. Investment securities priced using non-binding
broker quotes are included in Level 3. As is the case with the primary pricing
vendor, third-party brokers do not provide access to their proprietary
valuation models, inputs and assumptions. Accordingly, GEAM conducts internal
reviews of pricing for all such investment securities periodically to ensure
reasonableness of valuations used in our financial statements. These reviews
are designed to identify prices that appear stale, those that have changed
significantly from prior valuations, and other anomalies that may indicate that
a price may not be accurate. Based on the information available, GEAM believes
that the fair values provided by the brokers are representative of prices that
would be received to sell the assets at the measurement date (exit prices).
Other financial investments are derivative investments that are not reflected
in Total Investments, such as futures, forwards, swaps, and written options
contracts, which are valued based o the unrealized appreciation/depreciation of
the instrument.
The Fund uses closing prices for derivatives included in Level 1, which are
traded either on exchanges or liquid over-the counter markets. Derivative
assets and liabilities included in Level 2 primarily represent interest rate
swaps, cross-currency swaps and foreign currency and commodity forward and
option contracts. Derivative assets and liabilities included in Level 3
primarily represent interest rate products that contain embedded optionality or
prepayment features.
In January 2010, FASB issued ASU 2010-06, Improving Disclosures about Fair
Value Measurements. ASU 2010-06 will require reporting entities to make new
disclosures about the amounts and reasons for significant transfers in and out
of Level 1 and Level 2 fair value measurements and inputs and valuation
techniques used to measure fair value for both recurring and nonrecurring fair
value measurements that fall in either Level 2 or Level 3, and information on
purchases, sales, issuances, and settlements in the roll forward of activity in
Level 3 fair value measures. The new disclosures are effective for interim and
annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements. Those disclosures are
effect for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. GEAM does not believe the adoption of ASU
2010-06 will materially impact the financial statement amounts.
The following tables present the funds' investments measured at fair value on a
recurring basis at December 31, 2009:
Level 1 Level 2 Level 3 Total
-----------------------------------------------------------------------
Investments in Securities+ $47,001,273 $3,077 $-- $47,004,350
Other Financial Instruments+ (8,796) -- -- (8,796)
+See Statement of Investments for Industry Classification.
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities. For example, money
market securities are valued using amortized cost, in accordance with the
Investment Company Act of 1940. Generally, amortized cost reflects the current
fair value of a security, but since the value is not obtained from a quoted
price in an active market, such securities are reflected as Level 2. Fair value
determinations are required for securities whose value is affected by a
significant event that will materially affect the
15
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
value of a domestic or foreign security and which occurs subsequent to the time
of the close of the principal market on which such domestic or foreign security
trades but prior to the calculation of the Fund's NAV.
REPURCHASE AGREEMENTS The Fund may engage in repurchase agreement transactions
with respect to instruments that are consistent with the Fund's investment
objectives or policies. The Fund's custodian or a third party custodian takes
possession of the collateral pledged for investments in repurchase agreements
on behalf of the Fund. The Fund values the underlying collateral daily on a
mark-to-market basis to determine that the value, including accrued interest,
is at least equal to 102% of the repurchase price. In the event the seller
defaults and the value of the security declines, or if the seller enters an
insolvency proceeding, realization of the collateral by the Fund may be delayed
or limited.
SECURITY LENDING The Fund may loan securities to brokers, dealers, and
financial institutions determined by GEAM to be creditworthy, subject to
certain limitations. The Fund continues to receive the interest and dividends
on the loaned securities during the term of the loan. The loans of securities
are secured by collateral in the form of cash or other liquid assets, which are
segregated and maintained with the custodian in an amount at least equal to
102% of the current market value of the loaned securities. During the term of
the loan, the Fund will record any gain or loss in the market value of its
loaned securities and of securities in which cash collateral is invested. The
Fund will also earn interest, net of any rebate, from securities in which cash
collateral is invested. In the event the counterparty (borrower) does not meet
its contracted obligation to return the securities, the Fund may be exposed to
the risk of loss of reacquiring the loaned securities at prevailing market
prices using the proceeds of the sale of the collateral.
FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the prevailing rates of exchange
on a daily basis (on days the New York Stock Exchange is open). Purchases and
sales of securities, income receipts and expense payments denominated in
foreign currencies are translated into U.S. dollars at the prevailing exchange
rate on the respective dates of such transactions.
The Fund does not isolate the portion of the results of operations resulting
from changes in foreign exchange rates of foreign denominated securities from
the fluctuations arising from changes in the market prices of those securities
during the period. Such fluctuations are included in the net realized or
unrealized gain or loss from investments. Net realized gains or losses on
foreign currency transactions represent net gains or losses on sales and
maturities of foreign currency contracts, disposition of foreign currencies,
the difference between the amount of net investment income and withholding
taxes accrued and the U.S. dollar amount actually received or paid, and gains
or losses between the trade and settlement date on purchases and sales of
securities. Net unrealized foreign exchange gains and losses arising from
changes in the value of other assets and liabilities as a result of changes in
foreign exchange rates are included as increases or decreases in unrealized
appreciation/depreciation on foreign currency related transactions.
FUTURES CONTRACTS The Fund may invest in interest rate, financial or stock or
bond index futures contracts subject to certain limitations. The Fund may
invest in futures contracts to manage its exposure to the stock and bond
markets and fluctuations in currency values. Buying futures tends to increase
the Fund's exposure to the underlying instrument while selling futures tends to
decrease the Fund's exposure to the underlying instrument, or hedge other Fund
investments. The Fund will not enter into a transaction involving futures for
speculative purposes. The Fund's risks in using these contracts include changes
in the value of the underlying instruments, non-performance of the
counterparties under the contracts' terms and changes in the liquidity of the
secondary market for the contracts. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange on
which they principally trade.
Upon entering into a futures contract, the Fund is required to pledge to the
broker an amount of cash and/or other assets equal to a certain percentage of
the contract amount, known as initial margin deposit. Subsequent payments,
known as variation margin, are made or received by the Fund each day, depending
on the daily fluctuation in the fair value of the underlying security. The Fund
records an unrealized gain or loss equal to the daily variation margin. Should
market conditions move unexpectedly, the Fund may not achieve the anticipated
benefits of the futures contracts and may incur a loss. The Fund recognizes a
realized gain or loss on the expiration or closing of a futures contract.
OPTIONS The Fund may purchase and write options, subject to certain
limitations. The Fund may invest in options
16
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
contracts to manage its exposure to the stock and bond markets and fluctuations
in foreign currency values.
Writing puts and buying calls tend to increase the Fund's exposure to the
underlying instrument while buying puts and writing calls tend to decrease the
Fund's exposure to the underlying instrument, or hedge other Fund investments.
The Fund will not enter into a transaction involving options for speculative
purposes. The Fund's risks in using these contracts include changes in the
value of the underlying instruments, non-performance of the counterparties
under the contracts' terms and changes in the liquidity of the secondary market
for the contracts. Options are valued at the last sale price, or if no sales
occurred on that day, at the last quoted bid price.
When the Fund writes an option, the amount of the premium received is recorded
as a liability and is subsequently adjusted to the current fair value of the
option written. Premiums received from writing options that expire unexercised
are treated by the Fund on the expiration date as realized gains from
investments. The difference between the premium and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium is less than the amount paid
for the closing purchase, as a realized loss. When an option is exercised, the
proceeds from the sale of the underlying security or the cost basis of the
securities purchased is adjusted by the original premium received or paid.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders.
Therefore, no provision for federal income tax has been made. The Fund is
treated as a separate taxpayer for federal income tax purposes.
The Fund is subject to ASC 740, Income Taxes. ASC 740 provides guidance for
financial accounting and reporting for the effects of income taxes that result
from an entity's activities during the year. ASC 740 also provides guidance
regarding how certain uncertain tax positions should be recognized, measured,
presented and disclosed in the financial statements. ASC 740 requires
evaluation of tax positions taken or expected to be taken in the course of
preparing the Funds' tax returns to determine whether the tax positions are
"more likely than not" of being sustained by the applicable tax authority.
There are no adjustments to the Funds' net assets required under ASC 740. The
Funds' 2006, 2007, 2008 and 2009 fiscal years tax returns are still open to
examination by the Federal and applicable state tax authorities."
At December 31, 2009, information on the tax cost of investments is as follows:
Net Tax
Appreciation/ Undistributed
Net Tax (Depreciation) on Undistributed Long-Term
Cost of Gross Tax Gross Tax Appreciation/ Derivatives, Income/ Gains Post October
Investments for Unrealized Unrealized (Depreciation) on Currency and (Accumulated (Accumulated Losses (see
Tax Purposes Appreciation Depreciation Investments other Net Assets Ordinary Loss) Capital Loss) Detail Below)
- --------------------------------------------------------------------------------------------------------------------------------
$47,840,600 $4,318,058 $(5,154,308) $(836,250) $-- $-- $(3,967,588) $(358,984)
As of December 31, 2009, the Fund has capital loss carryovers as indicated
below.
Amount Expires
---------------------------------------------------
3,967,588 12/31/2017
Capital loss carryovers are available to offset future realized capital gains
to the extent provided in the Internal Revenue Code and regulations thereunder.
To the extent that these carryover losses are used to offset future capital
gains, it is probable that the gains so offset will not be distributed to
17
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
shareholders because they would be taxable as ordinary income.
Any net capital and currency losses incurred after October 31, within the
Fund's tax year, are deemed to arise on the first day of the Fund's next tax
year if the Fund so elects to defer such losses.
The Fund elected to defer losses after October 31, 2009 as follows:
Capital Currency
---------------------------------------------------
358,984 --
The tax composition of distributions paid during the years ended December 31,
2009 and December 31, 2008 were as follows:
Long-Term
Ordinary Capital Return
Income Gains of Capital Total
-----------------------------------------------
2009 $153,151 $ -- $ -- $ 153,151
2008 323,003 2,651,304 11,153 2,985,460
DISTRIBUTIONS TO SHAREHOLDERS The Fund declares and pays dividends from net
investment income annually. The Fund declares and pays net realized capital
gains in excess of capital loss carryforwards distributions annually. The
character of income and gains to be distributed is determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences include (but are not limited to) futures and
losses deferred due to wash sale transactions. Reclassifications due to
permanent book/tax differences are made to the Fund's capital accounts to
reflect income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. These reclassifications have no
impact on net investment income, realized gains or losses, or the net asset
value of the Fund. The calculation of net investment income per share in the
Financial Highlights table excludes these adjustments.
Undistributed
Net Investment Accumulated
Income Net Realized Loss Paid In Capital
-----------------------------------------------------------------------------
$3,579 $-- $(3,579)
INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on
the ex-dividend date, net of applicable withholding taxes, except for certain
foreign corporate actions, which are recorded as soon after ex-dividend date as
such information becomes available. Interest income is recorded on the accrual
basis. All discounts and premiums on bonds are accreted and amortized,
respectively, to call or maturity date, whichever is shorter, using the
effective yield method.
EXPENSES Fund specific expenses are allocated to the Fund that incurs such
expense and pro rata across share classes. Expenses, other than those incurred
by a specific Fund, are allocated pro rata among Funds and share classes. Such
expenses may include custodial fees, legal and accounting fees, printing costs
and registration fees. All expenses of the Fund are paid by GEAM and reimbursed
by the Fund. Certain class specific expenses (such as transfer agency fees or
distribution fees) are allocated to the class that incurs such expense.
DERIVATIVE INSTRUMENTS
The Fund is subject to equity price risk, and foreign currency exchange rate
risk in the normal course of pursuing their investment objectives. The Fund
entered into derivative transactions for the purpose of hedging against the
effects of changes in the value of portfolio securities due to anticipated
changes in market conditions and to gain market exposure for residual and
accumulating cash positions. A futures contract represents a commitment for the
future purchase or sale of an asset at a specified price on a specified date.
Upon entering into such contracts, the Fund is required to deposit with the
broker, either in cash or securities, an initial margin in an amount equal to a
certain percentage of the contract amount. Subsequent payments (variation
margin) are made or received by the Fund each day, depending on the daily
fluctuations in the value of the contract, and are recorded for financial
statement purposes as unrealized gains or losses by the Fund. Upon entering
into such contracts, the Fund bears the risk of interest or exchange rates or
securities prices moving unexpectedly, in which case, the Fund may not achieve
the anticipated benefits of the futures contracts and may realize a loss. With
futures contracts, there is minimal counterparty credit risk to the Fund since
futures contracts are exchange traded and the exchange's clearinghouse, as
counterparty to all traded futures, guarantees the futures against default.
18
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
Shown below are the derivative contracts entered into by the Fund, summarized
by primary risk exposure.
Asset Derivatives December 31, 2009 Liability Derivatives December 31, 2009
- -------------------------------------------------------------------------------------------------------
Derivatives not Location in Notional Location in Notional
accounted for as the Statements Value/No. of the Statements Value/No. of
hedging instruments of Assets Contracts Fair of Assets Contracts Fair
under FASB ASC 815 and Liabilities Long/(Short) Value and Liabilities Long/(Short) Value
- -------------------------------------------------------------------------------------------------------
Equity Contracts -- -- -- Payables, Net Assets - 721,955/13 (8,796)*
Unrealized Appreciation/
(Depreciation) on
futures
*Includes cumulative appreciation/depreciation of futures contracts as reported
in the Schedule of Investments and Equity Section of the Statement of Asset
and Liabilities. Only the current day's variation margin is reported within
the receivables and/or payables Statement of Assets and Liabilities.
Shown below are the effects of derivative instruments on the Fund's Statements
of Operations, summarized by primary risk exposure.
Total Number of Change in Unrealized
Derivatives not accounted Location in the Futures/Options Realized Gain or Appreciation/(Depreciation)
for as hedging instruments Statements of Contracts (Loss) on Derivatives on Derivatives
under FASB ASC 815 Operations Purchased/(Sold) Recognized in Income Recognized in Income
- -------------------------------------------------------------------------------------------------------------------------------
Equity Contracts Net realized gain/(loss) on 121/(107) 70,916 267
futures, Increase/(decrease)
in unrealized appreciation/
(depreciation) on futures
3. LINE OF CREDIT
The Company shares a revolving credit facility of up to $150 million with a
number of its affiliates. The credit facility is with its custodian bank, State
Street Bank and Trust Company. The revolving credit facility requires the
payment of a commitment fee equal to 0.15% per annum on the daily unused
portion of the credit facility, payable quarterly. The portion borne by the
Funds generally is borne proportionally based upon net assets. In addition, the
Company has a $100 million uncommitted, unsecured line of credit with State
Street. Generally, borrowings under the credit facilities would accrue interest
at the Federal Funds Rate plus 50 basis points and would be borne by the
borrowing Fund. The maximum amount allowed to be borrowed by any one Fund is
the lesser of (i) its prospectus limitation or (ii) 20% of its net assets. The
credit facilities were not utilized by the Fund during the fiscal year ended
December 31, 2009.
4. AMOUNTS PAID TO AFFILIATES
GEAM, a registered investment adviser, was retained by the Company's Board of
Directors effective November 15, 1997 to act as investment adviser and
administrator of the Fund. GEAM's compensation for investment advisory and
administrative services is paid monthly based on the average daily net assets
of the Fund at an annualized rate of 0.65%.
GEAM waives a portion of the Fund's Management Fee in the amount equal to the
management fee earned by GEAM with respect to the Funds Investment in the GE
Funds-GE Money Market Fund.
DISTRIBUTION AND SERVICE (12B-1) FEE The Company has adopted a Distribution and
Service (12b-1) Plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act
with respect to Class 4 shares of the Fund. Under the Plan, the Fund may
compensate GE Investment Distributors, Inc. ("GEID"), a wholly-owned subsidiary
of GEAM and the Fund's principal distributor, for certain sales services
provided by GEID or other broker dealers and investor services provided by GEID
or other service providers relating to the Fund's Class 4 shares, including
services to owners or prospective owners of variable contracts issued by
insurance companies that offer such share class as an investment option. The
amount of compensation paid under the Plan by the Fund's Class 4 shares may not
exceed 0.45% of the average daily net assets of the Fund attributable to such
share class. The Plan continues in effect from year to year for so long as such
continuance is approved annually by the Board of
19
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
Directors, including by those directors who are not interested persons of the
Company and who have no direct or indirect financial interest in the operation
of the Plan or in any agreement related to it.
GENPACT performs certain accounting and certain administration services not
provided by GEAM. For the period ending December 31, 2009, $743 was charged to
the Fund.
DIRECTORS' COMPENSATION The Fund pays no compensation to its directors who are
officers or employees of GEAM or its affiliates. Directors who are not such
officers or employees also serve in a similar capacity for other funds advised
by GEAM. Compensation paid to unaffiliated directors are reflected on the
Statement of Operations. These fees are allocated pro rata across all of the
mutual fund platforms and share classes served by the directors, including the
Fund, and are based upon the relative net assets of each fund within such
platforms. (For additional information about directors compensation please
refer to the Statement of Additional Information.)
5. INVESTMENT TRANSACTIONS
Purchases and Sales of Securities The cost of purchases and the proceeds from
sales of investments, other than short-term securities and options, for the
period ended December 31, 2009 were as follows:
U.S. Government Securities
-----------------------------------------------------
Purchases Sales
-----------------------------------------------------
$-- $--
Other Securities
-----------------------------------------------------
Purchases Sales
-----------------------------------------------------
$7,839,142 $18,350,502
SECURITY LENDING At December 31, 2009, and for the year then ended the Fund did
not participate in securities lending.
20
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors GE Investments Funds, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the Premier Growth Equity Fund, a
series of GE Investments Funds, Inc., as of December 31, 2009, and the related
statement of operations for the year then ended, statements of changes in net
assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years or periods in the five-year period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of December 31, 2009 by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Premier Growth Equity Fund as of December 31, 2009, the results of its
operations, changes in its net assets and financial highlights for each of the
years or periods described above, in conformity with U.S. generally accepted
accounting principles.
/s/ KPMG LLP
Boston, Massachusetts
February 25, 2010
21
Advisory and Administrative Agreement Renewal (unaudited)
- ---------------------------------------------------------------
The Board of Directors of the GE Investments Funds, Inc. (the "Board"),
including the independent Board members, considered and all those that were
present unanimously approved the continuance of the Fund's Investment Advisory
and Administration Agreement with GE Asset Management Incorporated ("GEAM") at
meetings held on December 4 and December 11, 2009.
In considering whether to approve the Fund's investment advisory agreement, the
Board members considered and discussed a substantial amount of information and
analysis provided, at the Board's request, by GEAM. The Board members also
considered detailed information regarding performance and expenses of other
investment companies, including those with similar investment objectives and
sizes, which was prepared by independent third party providers, Lipper
Analytical Services Inc. ("Lipper") and Morningstar, Inc. ("Morningstar"). The
Board members reviewed the fees charged by GEAM for other mutual funds and
investment products other than mutual funds that employ the same investment
strategy as the Fund. The Board had the opportunity to ask questions and
request additional information in connection with its considerations.
Before approving the Fund's advisory agreement, the Board members reviewed the
information provided with management of GEAM and with independent legal
counsel. The Board members also reviewed a memorandum prepared by independent
legal counsel discussing the legal standards for the consideration of the
proposed continuance. The independent Board members discussed the proposed
continuance in detail during a private session with their independent legal
counsel at which no representatives of GEAM were present. The independent Board
members and their independent legal counsel requested, and received and
considered, additional information from GEAM following these sessions.
In advance of the meetings, and in response to their request, the Board members
received from GEAM written responses to their inquiries, which included
substantial exhibits and other materials related to GEAM's business and the
services it provides to the Fund. The Board members took into account their
multi-year experience as Board members and particularly their consideration of
these types of agreements in recent years. The information was presented in a
manner to facilitate comparison to prior periods and to reflect certain
enhancements. To focus their review, the Board members asked GEAM management,
in its oral presentation, to highlight material differences from the
information presented in recent years.
During the meetings, the Board members had an opportunity to discuss this
information with GEAM managers, including senior executives, representatives
from the legal, compliance and finance departments, and investment personnel.
The Board members posed questions to these representatives and engaged in
substantive discussions with them concerning GEAM's investment process.
In reaching their determination relating to continuance of the Fund's
investment advisory agreement, the Board members considered all factors that
they deemed relevant, including the factors discussed below. In their
deliberations, the Board members did not identify any particular information
that was all-important or controlling, and each Board member may have
attributed different weights to the various factors. In particular, the Board
members focused on the following:
The Nature, Extent And Quality Of Services Provided.
The Board members reviewed the services provided by GEAM, taking into account
their extensive past experiences with GEAM. They focused on the favorable
attributes of GEAM, including (i) an investment philosophy oriented toward
long-term performance; (ii) effective processes used for selecting investments
and brokers; (iii) effective processes used for providing Fund administration,
including controllership and compliance functions and oversight of the
performance of other companies that provide services to the Fund; (iv) highly
skilled professionals including analysts, research professionals, traders and
portfolio managers with a depth of experience involving the types of Funds they
oversee; (v) access to significant technological resources from which the Fund
may benefit; and (vi) a favorable history and reputation. The Board members
discussed with senior officers of GEAM the personnel changes made, and proposed
to be made, by GEAM. The Board members noted that the Fund represents only a
small portion of the assets managed by GEAM, but benefits from a full array of
services and resources provided by GEAM.
In light of these discussions, the Board, including the independent Board
members, concluded that GEAM's services continue to be satisfactory.
22
Advisory and Administrative Agreement Renewal (unaudited)
- ---------------------------------------------------------------
Investment Performance Of The Fund.
The Board members considered the investment performance of the Fund for various
periods. The Board members reviewed detailed comparisons of the performance of
the Fund with the relevant securities indices and peer groupings of mutual
funds prepared by Lipper and Morningstar with respect to various periods. The
Board members also engaged in detailed discussions with GEAM management about
its investment process and performance results. These discussions focused on
the Fund's investment objective, the number and experience of portfolio
management and supporting research personnel, the investment style and approach
employed and the likely market cycles for the investment style.
The Board, including the independent Board members, concluded that the Fund's
performance was acceptable overall taking into consideration the factors
discussed above.
Cost Of The Services Provided And Profits Realized From The Relationship With
The Fund.
The Board members considered the fees paid to GEAM by the Fund and the cost of
the services provided to the Fund by GEAM. The Board members reviewed the
information they had requested from GEAM concerning its profitability. The
Board members considered the profit margin information for GEAM's investment
company business as a whole, as well as GEAM's profitability data for the Fund.
The Board members reviewed GEAM's assumptions and the methods of cost
allocation used by GEAM in preparing Fund-specific profitability data. The
Board members also discussed with GEAM the basis for its belief that the
methods of allocation used were reasonable for each area of its business.
Information was presented regarding the financial condition of GEAM for various
past periods. The Board members noted and discussed the additional services
provided by GEAM to the Fund compared to other investment products managed by
GEAM, and were provided a study conducted by the Investment Company Institute
that discusses and compares advisory fees and services for mutual funds and
institutional separate accounts. The Board members determined that GEAM should
be entitled to earn a reasonable level of profits for the services it provides
to the Fund. The Board members also recognized that GEAM had made significant
investments in its business and had not fully recovered the sums invested. The
Board also considered that, in the face of overall declining assets and
revenues over the course of the past year, GEAM continues to make a substantial
investment in fulfilling its obligations to the Fund and supporting its
Fund-related activities.
Based on their review, the Board, including the independent Board members,
concluded that they were satisfied that the level of profitability achieved by
GEAM from its relationship with the Fund was not unreasonable or excessive.
The Extent To Which Economies Of Scale Would Be Realized As The Fund Grows And
Whether Fee Levels Would Reflect Such Economies Of Scale.
Although the Board noted that the Fund did not experience significant growth in
assets over the past year, the Board members considered the extent to which
economies of scale would be realized as the Fund grows, and whether fee levels
reflect these economies of scale for the benefit of Fund investors.
The Board members considered the substantial infrastructure investments that
GEAM has made with respect to its operations and its commitment to continue
investing resources to enhance services to Fund shareholders. The Board members
recognized the benefits to the Fund of GEAM's past investment in its operations
through the expenditure of sums to support its substantial infrastructure, and
that, with respect to all GEAM managed mutual funds, GEAM has not yet fully
recouped that investment. The Board members also recognized the benefits to the
Fund of being able to leverage a favorable cost structure achieved with respect
to the Fund's other operating expenses as a result of GEAM's large overall base
of assets under management and its vendor management practices.
Comparison Of Services To Be Rendered And Fees To Be Paid.
The Board members discussed the services provided to the Fund by GEAM, and the
fees charged for those services. The Board members reviewed information
concerning the fee and expense ratios for the Fund, and comparative information
with respect to similar products. They discussed that the Fund's figures were
within the applicable peer group range. In light of the foregoing, the Board,
including the independent Board members, determined that the advisory fees were
reasonable in relation to the services provided to the Fund.
23
Advisory and Administrative Agreement Renewal (unaudited)
- ---------------------------------------------------------------
Fall-Out Benefits.
The Board members considered other actual and potential financial benefits that
GEAM may derive from its relationship with the Fund, including, to the extent
applicable, soft dollar commission benefits generated through Fund portfolio
transactions. The Board members noted, however, that the Fund benefits from the
vast array of resources available through GEAM, and that the Fund represents
only a small portion of the assets managed by GEAM.
Conclusion.
No single factor was determinative to the Board's decision. Based on their
discussion and such other matters as were deemed relevant, the Board, including
the independent Board members, concluded that renewal of the advisory agreement
was in the best interests of the Fund and its shareholders.
24
Additional Information (unaudited)
- ---------------------------------------------------------------
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS:
The business and affairs of the Company are managed under the direction of the
Company's Board of Directors. Information pertaining to the Directors and
officers of the Company is set forth below.
INTERESTED DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
MICHAEL J. COSGROVE
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
POSITION(S) HELD WITH FUND Chairman of the Board and President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS President and Chief Executive
Officer - Mutual Funds and Intermediary Business since March 2007; Executive
Vice President of GEAM from February 1997 to March 2007; Director of GEAM since
1988; Vice President, GE Capital Corporation, an indirect wholly-owned
subsidiary of GE, since December 1999; Executive Vice President - Sales and
Marketing of GEAM, a wholly-owned subsidiary of GE that is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, from
March 1993 to March 2007.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 51
OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE
Funds since 1993, and GE Institutional Funds since its inception; Trustee of
General Electric Savings & Security Trust, General Electric S&S Income Fund,
General Electric S&S Program Mutual Fund ("GE Savings & Security Funds"), Elfun
Funds, General Electric Insurance Plan Trust, General Relief Loan Fund, and
General Electric Pension Trust since 1988; Trustee of Fordham University since
2002; Trustee of GE Volunteers since 1993; Director, GE Asset Management
(Ireland) since February 1999; Director, GE Asset Management Funds Plc., GE
Asset Canada Company, and GE Asset Management Limited since 1998.
- --------------------------------------------------------------------------------
MATTHEW J. SIMPSON
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 48
POSITION(S) HELD WITH FUND Director and Executive Vice President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 2 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President, General
Counsel and Secretary of GEAM since July 2007; Senior Vice President and
General Counsel - Marketing and Client Services (formerly Asset Management
Services), at GEAM and Senior Vice President and General Counsel of GEAMS from
February 1997 to June 2007; Vice President and Associate General Counsel of
GEAM from October 1992 to February 1997; Secretary of Fund from 1997 to June
2007; Vice President of Fund from September 2003 to June 2007; Vice President
of GE Institutional Funds from September 2003 to June 2007; Secretary of GE
Institutional Funds and GE LifeStyle Funds from 1997 to June 2007; Vice
President of Elfun Funds and GE Savings & Security Funds from October 2003 to
June 2007; Assistant Secretary of Elfun Funds and GE Savings & Security Funds
from 1998 to June 2007.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 51
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds, GE Institutional
Funds, Elfun Funds and GE Savings & Security Funds since July 2007.
25
Additional Information (unaudited)
- ---------------------------------------------------------------
- --------------------------------------------------------------------------------
SCOTT H. RHODES
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 49
POSITION(S) HELD WITH FUND Treasurer
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 3 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS GEAM Mutual Funds Operations
Manager since September 2005; Treasurer of GE Institutional Funds, GE LifeStyle
Funds and GE Investments Funds since November 2005 and Elfun Funds and GE
Savings & Security Funds since September 2005; from August 2004 to September
2005 Vice President, U.S. Trust Company, N.A. and Assistant Treasurer of
Excelsior Funds, Inc., Excelsior Funds Trust, and Excelsior Tax Exempt Funds,
Inc.; from January 2004 to August 2004, Vice President BlackRock Financial
Management, Inc.; from December 1996 to November 2003, Controller - Mutual
Funds, American Skandia Investment Services, Inc. and Assistant Treasurer of
American Skandia Trust and American Skandia Advisor Funds, Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
JEANNE M. LAPORTA
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 44
POSITION(S) HELD WITH FUND Vice President and Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 5 years (Vice President); 3 years (Secretary)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Senior Vice President and Deputy
General Counsel at GE Asset Management since October 2007; Vice President and
Associate General Counsel - Marketing and Client Services (formerly Asset
Management Services) at GEAM from May 1997 to October 2007; Vice President and
Assistant Secretary of GE Funds and GE Institutional Funds from September 2003
to July 2007; Vice President and Secretary of GE Funds and GE Institutional
Funds since July 2007; Vice President and Assistant Secretary of Elfun Funds
and GE Savings & Security Funds since October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
26
Additional Information (unaudited)
- ---------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 63
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS General Partner, NGN Capital LLC
since 2006; Managing Director, Vice President of Walden Capital Management
since 1996.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, GE
Institutional Funds since its inception; Trustee of Fordham University from
1989 to 1995 and 2001 to 2007 and Trustee Emeritus since 2007; Trustee of Neuro
Science Research Institute since 1986; Trustee of Gregorian University
Foundation from 1992 to 2007; Director of Artes Medical from 2006 to 2008.
- --------------------------------------------------------------------------------
WILLIAM J. LUCAS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 62
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Treasurer of
Fairfield University since 1983.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds since its inception.
- --------------------------------------------------------------------------------
ROBERT P. QUINN
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 74
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon
Brothers Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds since its inception; Trustee, St. Francis Hospital Corp.
- --------------------------------------------------------------------------------
The Statement of Additional Information for the Fund includes additional
information about the Directors and Officers and is available, without charge,
upon request by calling 1-800-493-3042.
27
Investment Team
- ----------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
GE Asset Management Incorporated
BOARD OF DIRECTORS
Michael J. Cosgrove, Chairman
John R. Costantino
William J. Lucas
Robert P. Quinn
Matthew J. Simpson
SECRETARY
Jeanne M. LaPorta
ASSISTANT SECRETARIES
Joseph A. Carucci
Joon Won Choe
Kimberley Costello
Michelle Matzelle
TREASURER
Scott H. Rhodes
ASSISTANT TREASURERS
Scott R. Fuchs
Christopher M. Isaacs
DISTRIBUTOR
GE Investment Distributors, Inc.
Member FINRA and SIPC
COUNSEL
Sutherland, Asbill & Brennan, LLP
CUSTODIAN
State Street Bank & Trust Company
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
OFFICERS OF THE INVESTMENT ADVISER
James W. Ireland, President and Chief Executive Officer
Cheryl H. Beacock, Senior Vice President, Human Resources
Daniel O. Colao, Executive Vice President, Chief Financial Officer
Michael J. Cosgrove, President and Chief Executive Officer - Mutual Funds &
Intermediary Business
Paul M. Colonna, President and Chief Investment Officer - Fixed Income
Investments
Amiel Goldberg, Senior Vice President, Chief Risk Officer
Ralph R. Layman, President and Chief Investment Officer - Public Equity
Investments (since July 2009)
Maureen B. Mitchell, President - Institutional Sales and Marketing (since July
2009)
Matthew J. Simpson, Executive Vice President, General Counsel and Secretary
Judith A. Studer, Chief Market Strategist (since July 2009)
Don W. Torey, President - Alternative Investments
John J. Walker, Executive Vice President, Chief Operating Officer
David Wiederecht, President and Chief Investment Officer - Investment Strategies
28
Investment Adviser
GE Asset Management Incorporated
3001 Summer Street
PO Box 7900
Stamford, CT 06904-7900
Distributor
GE Investment Distributors, Inc.
member FINRA and SIPC
3001 Summer Street
PO Box 7900
Stamford, CT 06904-7900
The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission for the first and third quarters of each
fiscal year on Form N-Q. The Fund's Forms N-Q, as well as a description of
the policies and procedures that the Fund uses to determine how to vote
proxies (if any) relating to portfolio securities is available without
charge (i) upon request, by calling 1-800-493-3042; (ii) on the Fund's
website at http://www.geam.com; and (iii) on the Commission's website at
http://www.sec.gov. The Fund's Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC--information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to
portfolio securities during the most recently disclosed 12-month period
ended June 30 is available without charge (i) through the Fund's website at
http://www.geam.com; and (ii) on the Commission's website at
http://www.sec.gov.
[LOGO] GE
GE Investments Funds, Inc.
Real Estate Securities Fund
Annual Report
December 31, 2009
[LOGO] GE
GE Investments Funds, Inc.
Real Estate Securities Fund Contents
- ------------------------------------------------------------
Notes to Performance.................................... 1
Manager Review and Schedule of Investments.............. 6
Notes to Schedule of Investments........................ 8
Financial Statements
Financial Highlights................................. 9
Statement of Assets and Liabilities.................. 10
Statement of Operations.............................. 11
Statements of Changes in Net Assets.................. 12
Notes to Financial Statements........................ 13
Report of Independent Registered Public Accounting Firm. 20
Advisory and Administrative Agreement Renewal........... 21
Additional Information.................................. 24
Investment Team......................................... 27
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
Notes to Performance December 31, 2009
- ---------------------------------------------------------------------
Information on the following performance pages relating to the GE Investments
Real Estate Fund one year total return and Schedule of Investments is audited.
All other information, including the portfolio manager Q&A pages, is unaudited.
Total returns take into account changes in share price and assume reinvestment
of all dividends and capital gains distributions, if any. Total returns shown
are net of Fund expenses but do not reflect fees and charges associated with
the variable contracts such as administrative fees, account charges and
surrender charges, which, if reflected, would reduce the Fund's total returns
for all periods shown.
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be higher or lower than the performance
data quoted. Periods less than one year are not annualized. Please call
800-493-3042 or visit the Fund's website at http://www.geam.com for the most
recent month-end performance data.
An investment in a Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency. An investment in a Fund is subject to risk, including
possible loss of principal invested.
FTSE NAREIT U.S. Real Estate Index is an unmanaged index of all tax-qualified
real estate investment trusts (REITs) listed on the New York Stock Exchange,
American Stock Exchange and NASDAQ which have 75% or more of their gross
invested book assets invested directly or indirectly in the equity ownership of
real estate. The results shown for the foregoing indices assume the
reinvestment of net dividends or interest.
The peer universe of the underlying annuity funds used in our peer group
average return calculation is based on the blend of Morningstar peer
categories, as shown. Morningstar is an independent mutual fund rating service.
A Fund's performance may be compared to or ranked within a universe of mutual
funds with investment objectives and policies similar but not necessarily
identical to the Fund's.
(C)2009 Morningstar, Inc. All Rights Reserved. The information contained
herein: (1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is no warranted to be accurate, complete
or timely. Neither Morningstar nor its content providers are responsible for
any damage or losses relating from any use of this information. Past
performance is no guarantee or future results.
- --------------
GE Investment Distributors, Inc., Member of FINRA & SIPC, is the principal
underwriter and distributor of the GE Investment Funds, Inc. and a wholly owned
subsidiary of GE Asset Management Incorporated, the investment adviser of the
Fund.
1
Real Estate Securities Fund
- --------------------------------------------------------------------------------
Urdang Securities Management, Inc. (Urdang) is the sub-adviser for the Real
Estate Securities Fund. Urdang is a wholly owned subsidiary of Urdang Capital
Management, Inc. (Urdang Capital). Urdang Capital is wholly owned by The Bank
of New York Mellon Corporation (Bank of New York) and operates as part of Bank
of New York's Asset Management Division. As a wholly owned subsidiary of Urdang
Capital, Urdang is a second tier subsidiary of Bank of New York. Urdang is a
registered investment adviser that was formed in 1995 to focus exclusively on
opportunities in the real estate securities market, including publicly traded
real estate investment trusts (REITs).
The Real Estate Securities Fund is co-managed by Dean Frankel, CFA and Eric
Rothman, CFA.
Dean Frankel is a senior portfolio manager, North America Real Estate
Securities strategy, at Urdang and serves as the senior portfolio manager to
the Fund. He joined Urdang in 1997 and has over 11 years of real estate
securities investment experience. Mr. Frankel is responsible for management of
Urdang's proprietary research process including the firm's Relative Value
Model. In addition, Mr. Frankel analyzes and interprets implications of major
events and economic trends while managing the daily operations of the North
American Real Estate Securities investment team.
Eric Rothman serves as a portfolio manager to the Fund, where he will help
direct Urdang's U.S. Real Estate Securities strategy. As portfolio manager,
Mr. Rothman is responsible for market research, sector allocations, and real
estate securities analysis. Additionally he has primary coverage responsibility
for the lodging, self storage and retail sectors. Mr. Rothman joined Urdang in
2006 and has over 14 years of real estate securities and real estate investment
experience, including being a sell-side REIT analyst at Wachovia Securities
from 2001 to 2006 and an analyst at AEW Capital Management, LP from 1997 to
2000.
Q. How did the Real Estate Securities Fund perform compared to its benchmark
and Morningstar peer group for the twelve-month period ended December 31,
2009?
A. For the twelve-month period ended December 31, 2009, the Real Estate
Securities Fund returned 35.77% for Class 1 shares and 35.14% for Class 4
shares. The FTSE NAREIT Equity Index, the Fund's benchmark, returned 27.99%
and the Fund's Morningstar peer group of 52 US Insurance Real Estate funds
returned an average of 29.35% for the same period.
Q. What market conditions impacted Fund performance?
A. The REIT rally which extended into the fourth quarter was part of a trend
that began in March when economic data began to suggest the worst of the
economic free-fall and credit crisis were over. Shortly thereafter REITs
moved higher on a wave of equity recapitalizations which served to vastly
reduce risk premiums by eliminating any perception of insolvency. As the
REIT recovery gained momentum it became clear that REITs with strong balance
sheets will likely benefit from dislocation in the commercial real estate
market through the acquisition of quality assets at attractive prices from
distressed private owners.
The easing of the credit crisis, the apparent ending of the recession, and
the re-equitization wave for the REIT market significantly and positively
impacted the financial markets and REIT market during the year.
Q. What were the primary drivers of Fund performance?
A. The Fund outperformed the benchmark by 778 basis points (bps) for the year
2009 (net of fees and expenses). Stock selection contributed 795 bps to the
Fund's returns and sector selection generated 58bps. The effect of cash
drag, intra-day trading profits, fees and loads, and other minor items
reduced relative performance by 75 bps. The Fund's returns from stock
selection was strong across the board, but particularly so among stock picks
within the apartment, healthcare and office sectors. Sector selection
returns was also broad based with the only notable offset to strong
performance coming from an underweight to the hotel and regional mall
sectors both of which were top performing sectors with total returns
exceeding 60%.
Q. Were there any significant changes to the Fund over the period?
A. Despite significant outperformance in 2009, we did not deviate from our
investment process, philosophy or approach that we have consistently applied
since 1995. Stock selection, which typically represents the majority of the
Fund's outperformance, contributed to three quarters of the Fund's returns
in 2009. In keeping with our conservative strategy, the single biggest
detractor of relative performance was high
2
- --------------------------------------------------------------------------------
[GRAPHIC]
volatility REITs. Ten index members posted total returns exceeding 75% in
2009. We were substantially underweight in all but two of these very high
risk, high volatility REITs all year resulting in a sizable drag on Fund
performance.
The Fund was positioned very defensively at the start of 2009. We carried
little exposure to high financial leverage, unfunded development, and
sensitivity to the economic cycle, in favor of REITs with strong cash flow
from long-term leases and ample balance sheet capacity. This served the
portfolio very well early in 2009. As the market changed and the
re-equitization wave took hold, we became less defensive and move toward
REITs we felt would benefit first from the improving capital and economic
environment. To this end we further reduced exposure to healthcare, net
lease, and apartments, and increased exposure to industrial, self storage
and hotels. Today, we remain mindful of the weak economic backdrop and
lingering constraints in the credit market, but are positioned to take
advantage of improvement in the macro environment. Today we are underweight
in the healthcare and retail sectors, neutral in the apartments and
industrial sectors, and overweight in the office sector.
3
Real Estate Securities Fund
- --------------------------------------------------------------------------------
Understanding Your Fund's Expenses
As a shareholder of the Fund you incur ongoing expenses, which include
portfolio management fees, professional fees, administrative fees and other
Fund expenses. The following example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors during the period. The information in the
following table is based on an investment of $1,000, which is invested at the
beginning of the period and held for the entire six-month period ended
December 31, 2009.
Actual Expenses
The first section of the table provides information about actual account values
and actual expenses. You may use the information in this section, together with
the amount you invested, to estimate the expenses that you paid over the
period. To do so, simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number given for your class under the heading "Expenses Paid During Period."
Hypothetical Example for Comparison Purposes
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and
an assumed rate of return of 5% per year before expenses, which is not the
Fund's actual return. You may use this information to compare the ongoing costs
of investing in the Fund and other funds. To do so, compare this 5%
hypothetical example with the 5% hypothetical examples that appear in the
shareholders reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
July 1, 2009 - December 31, 2009
- --------------------------------------------------------------------------------------------
Account value at the Account value at the Expenses paid
beginning of the period ($) end of the period ($) during the period ($)*
- --------------------------------------------------------------------------------------------
Actual Fund Return**
- --------------------------------------------------------------------------------------------
Class 1 1,000.00 1,481.55 6.51
Class 4 1,000.00 1,479.42 9.19
- --------------------------------------------------------------------------------------------
Hypothetical 5% Return (2.5% for the period)
- --------------------------------------------------------------------------------------------
Class 1 1,000.00 1,019.77 5.29
Class 4 1,000.00 1,017.64 7.48
- --------------------------------------------------------------------------------------------
*Expenses are equal to the Fund's annualized expense ratio of 1.04% for Class 1
Shares and 1.47% for Class 4 Shares (for the period July 1, 2009--December 31,
2009), multiplied by the average account value over the period, multiplied by
184/365 (to reflect the six months period)
**Actual Fund Returns for the six-month period ended December 31, 2009 were as
follows: 48.16% for Class 1 shares, and 47.94% for Class 4 shares.
4
Real Estate Securities Fund
- --------------------------------------------------------------------------------
Change in Value of a $10,000 Investment
Class 1 Shares
- --------------------------------------------------------------------------------
[CHART]
GEI Real Estate Securities NAREIT Equity Index
-------------------------- -------------------
Dec 31, 1999 10,000.00 10,000.00
Dec 1, 2000 13,254.12 12,636.54
Dec 1, 2001 14,823.07 14,397.17
Dec 1, 2002 14,623.57 14,947.26
Dec 1, 2003 20,101.22 20,497.73
Dec 1, 2004 26,591.87 26,970.40
Dec 1, 2005 29,724.72 30,250.77
Dec 1, 2006 39,541.95 40,856.89
Dec 1, 2007 33,666.31 34,445.73
Dec 1, 2008 21,535.50 21,450.17
Dec 1, 2009 29,238.93 27,454.12
- --------------------------------------------------------------------------------
Average Annual Total Return
for the Periods Ended December 31, 2009
- --------------------------------------------------------------------------------
Class 1 Shares (Inception date: 5/1/95)
- --------------------------------------------------------------------------------
One Five Ten Ending Value of a
Year Year Year $10,000 Investment
-----------------------------------------------------------------------
Real Estate Securities Fund 35.77% 1.92% 11.33% $29,239
-----------------------------------------------------------------------
NAREIT Equity Index 27.99% 0.36% 10.63% $27,454
-----------------------------------------------------------------------
Morningstar peer group average* 29.35% 0.35% 10.24%
-----------------------------------------------------------------------
Class 4 Shares
- --------------------------------------------------------------------------------
[CHART]
GEI Real Estate Securities NAREIT Equity Index
------------------------- -------------------
5/1/2008 10,000.00 10,000.00
Jun 1, 2008 8,765.43 8,981.15
Sep 1, 2008 9,176.95 9,479.83
Dec 1, 2008 5,701.39 5,801.31
Mar 1, 2009 4,027.10 3,952.51
Jun 1, 2009 5,207.91 5,092.81
Sep 1, 2009 6,996.76 6,787.47
Dec 1, 2009 7,704.68 7,425.11
- --------------------------------------------------------------------------------
Total Returns
for the Periods Ended December 31, 2009
- --------------------------------------------------------------------------------
Class 4 Shares (Inception date: 5/1/08)
- --------------------------------------------------------------------------------
One Since Ending Value of a
Year Inception $10,000 Investment
---------------------------------------------------------------------
Real Estate Securities Fund 35.14% -14.45% $7,705
---------------------------------------------------------------------
NAREIT Equity Index 27.99% -16.34% $7,425
---------------------------------------------------------------------
Morningstar peer group average** 29.35%
---------------------------------------------------------------------
Investment Profile [GRAPHIC]
A Mutual Fund designed for investors
who seek maximum total return through
current income and capital
appreciation by investing at least
80% of its net assets in common and
preferred stocks and other types of
equity securities and debt securities
of U.S. issuers that are principally
engaged in or related to the real
estate industry, including those that
own significant real estate assets,
under normal circumstances.
Portfolio Composition as of December 31, 2009
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $69,616 (in thousands)
[CHART]
Office 15.3%
Multifamily 15.1%
Regional Malls 11.8%
Healthcare 10.2%
Shopping Centers 8.8%
Self Storage 7.1%
Specialty 6.6%
Industrial 5.9%
Hotel 5.9%
Diversified 5.2%
Office/Industrial 3.0%
Freestanding 2.4%
Mortgage 1.6%
Short-Term 1.1%
Other Investments 0.0%***
Top Ten Largest Equity Holdings
as of December 31, 2009
as a % of Market Value
---------------------------------
Simon Property Group, Inc. 7.47%
---------------------------------
Public Storage 7.08%
---------------------------------
Boston Properties, Inc. 5.30%
---------------------------------
Equity Residential 5.26%
---------------------------------
Vornado Realty Trust 4.74%
---------------------------------
Essex Property Trust, Inc. 3.94%
---------------------------------
ProLogis 3.93%
---------------------------------
Kimco Realty Corp. 3.50%
---------------------------------
Ventas, Inc. 3.45%
---------------------------------
Regency Centers Corp. 3.23%
---------------------------------
* Morningstar performance comparisons are based on average annual total returns
for the one year, five-year, and ten-year periods indicated in the Real
Estate peer group consisting of 52, 41 and 21 underlying annuity funds,
respectively.
**Morningstar performance comparisons are based on average annual total returns
for the one year period indicated in the Real Estate peer group consisting of
52 underlying annuity funds.
***Less than 0.01%.
See Notes to Performance on page 1 for further information, including an
explanation of Morningstar peer categories.
Past performance does not predict future performance and the graph and table do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
5
Real Estate Securities Fund
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
Real Estate Securities Fund
Number
of Shares Value
Common Stock (REIT's) -- 93.9%+
-------------------------------------------------------------------
Diversified -- 5.1%
Cousins Properties Inc................ 43,611 $ 332,752
Vornado Realty Trust.................. 47,164 3,298,650
3,631,402
Freestanding -- 2.3%
National Retail Properties, Inc....... 49,940 1,059,727
Realty Income Corp.................... 22,410 580,643
1,640,370
Healthcare -- 10.1%
Cogdell Spencer Inc................... 98,630 558,246
HCP, Inc.............................. 54,110 1,652,519
Healthcare Realty Trust Inc........... 26,630 571,480
Nationwide Health Properties, Inc..... 34,660 1,219,339
Senior Housing Properties Trust....... 31,970 699,184
Ventas, Inc........................... 54,980 2,404,825
7,105,593
Hotel -- 4.4%
DiamondRock Hospitality Co............ 100,070 847,593
Host Hotels & Resorts, Inc............ 135,810 1,584,903
Sunstone Hotel Investors, Inc......... 76,970 683,494 /(a)/
3,115,990
Industrial -- 5.8%
AMB Property Corp..................... 54,330 1,388,131
ProLogis.............................. 200,050 2,738,684
4,126,815
Mortgage -- 1.5%
Apollo Commercial Real Estate
Finance Inc.......................... 21,010 377,970 /(a)/
Starwood Property Trust Inc........... 36,670 692,696
1,070,666
Multifamily -- 14.9%
Camden Property Trust................. 32,630 1,382,533
Education Realty Trust, Inc........... 71,480 345,963
Equity Residential.................... 108,490 3,664,792
Essex Property Trust, Inc............. 32,830 2,746,230
Home Properties, Inc.................. 19,740 941,795
UDR, Inc.............................. 88,180 1,449,679
10,530,992
Office -- 15.1%
Alexandria Real Estate Equities, Inc.. 9,540 613,327
Boston Properties, Inc................ 54,980 3,687,509
Brandywine Realty Trust............... 187,600 2,138,640
Douglas Emmett, Inc................... 49,370 703,522
Kilroy Realty Corp.................... 69,950 2,145,367
SL Green Realty Corp.................. 27,580 1,385,619
10,673,984
Number
of Shares Value
Office/Industrial -- 3.0%
Duke Realty Corp................ 172,900 $ 2,104,193
Regional Malls -- 11.6%
Simon Property Group, Inc....... 65,130 5,197,363
Taubman Centers, Inc............ 36,240 1,301,378
The Macerich Co................. 46,830 1,683,539
8,182,280
Self Storage -- 7.0%
Public Storage.................. 60,490 4,926,910
Shopping Centers -- 8.7%
Federal Realty Investment Trust. 17,680 1,197,290
Kimco Realty Corp............... 180,020 2,435,671
Regency Centers Corp............ 64,070 2,246,294
Tanger Factory Outlet Centers... 6,260 244,077
6,123,332
Specialty -- 4.4%
Digital Realty Trust, Inc....... 28,800 1,448,064
Entertainment Properties Trust.. 15,800 557,266
Plum Creek Timber Company, Inc.. 28,380 1,071,629
3,076,959
Total Common Stock (REIT)
(Cost $52,594,896)............. 66,309,486
-------------------------------------------------------------
Common Stock -- 3.6%
-------------------------------------------------------------
Hotel -- 1.4%
Hyatt Hotels Corp............... 11,530 343,709 /(a)/
Pebblebrook Hotel Trust......... 29,490 649,075 /(a)/
992,784
Specialty -- 2.2%
American Tower Corp.
(Class A)...................... 35,630 1,539,572 /(a)/
Total Common Stock
(Cost $2,001,161).............. 2,532,356
-------------------------------------------------------------
Other Investments -- 0.0%*
-------------------------------------------------------------
GEI Investment Fund
(Cost $3,920).................. 2,979 /(c)/
Total Investments in Securities
(Cost $54,599,977)............. 68,844,821
See Notes to Schedules of Investments on page 8 and Notes to Financial
Statements on page 13.
6
Real Estate Securities Fund
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
Number
of Shares Value
Short-Term Investments -- 1.1%
------------------------------------------------------------------
GE Money Market Fund Institutional
Class 0.01%
(Cost $771,640)................... $ 771,640 /(b,d)/
Total Investments
(Cost $55,371,617)................ 69,616,461
Other Assets and Liabilities,
net -- 1.4%....................... 965,635
-----------
NET ASSETS -- 100.0%............... $70,582,096
===========
See Notes to Schedules of Investments on page 8 and Notes to Financial
Statements on page 13.
7
Notes to Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
- --------------------------------------------------------------------------------
The views expressed in this document reflect our judgment as of the publication
date and are subject to change at any time without notice. The securities cited
may not represent current or future holdings and should not be considered as a
recommendation to purchase or sell a particular security. See the prospectus
for complete descriptions of investment objectives, policies, risks and
permissible investments.
(a)Non-income producing security.
(b)Coupon amount represents effective yield.
(c)GE Asset Management Incorporated (GEAM) is the investment advisor of the
Fund and also serves as investment advisor of the GEI Investment Fund.
(d)GEAM, the investment adviser of the Fund, also serves as investment adviser
of the GE Funds-GE Money Market Fund.
* Less than 0.1%.
+ Percentages are based on net assets as of December 31, 2009.
Abbreviations:
REIT Real Estate Investment Trust
8
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
Real Estate Securities Fund
---------------------------------------------------------
CLASS 1
--------------------------------------------------------
12/31/09 12/31/08 12/31/07 12/31/06 12/31/05
-------- --------- --------- -------- -------- -
Inception date -- -- -- -- 5/1/95
Net asset value, beginning of period.......... $ 6.46 $ 10.87 $ 21.49 $ 19.20 $ 19.54
Income/(loss) from investment operations:
Net investment income....................... 1.03 1.11 0.72 0.65 0.70
Net realized and unrealized gains/(losses)
on investments............................. 1.29 (5.05) (3.87) 5.68 1.62
- ------------------------------------------------------------------------------------------------------------
Total income/(loss) from
investment operations........................ 2.32 (3.94) (3.15) 6.33 2.32
- ------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income....................... 0.22 0.28 0.73 0.48 0.75
Return of Capital........................... 0.15 0.19 0.02 -- --
Net realized gains.......................... 0.00 0.00 6.72 3.56 1.91
- ------------------------------------------------------------------------------------------------------------
Total distributions........................... 0.37 0.47 7.47 4.04 2.66
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period................ $ 8.41 $ 6.46 $ 10.87 $ 21.49 $ 19.20
- ------------------------------------------------------------------------------------------------------------
TOTAL RETURN/(a)/............................. 35.77% (36.03)% (14.86)% 33.03% 11.78%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)............................. $ 70,574 $ 59,969 $ 96,650 $178,317 $143,801
Ratios to average net assets:
Net investment income..................... 4.75% 4.67% 2.59% 3.08% 3.21%
Expenses.................................. 1.04%/(b)/ 0.95%/(b)/ 0.90% 0.88% 0.89%
Portfolio turnover rate................... 105% 121% 106% 92% 52%
---------------------------
CLASS 4
---------------------------
12/31/09 12/31/08
-------- --------
Inception date -- 5/1/08
Net asset value, beginning of period.......... $6.47 $12.15
Income/(loss) from investment operations:
Net investment income....................... 0.29 0.39**
Net realized and unrealized gains/(losses)
on investments............................. 1.99 (5.63)
- --------------------------------------------------------------------------
Total income/(loss) from
investment operations........................ 2.28 (5.24)
- --------------------------------------------------------------------------
Less distributions from:
Net investment income....................... 0.19 0.25
Return of Capital........................... 0.15 0.19
Net realized gains.......................... 0.00 0.00
- --------------------------------------------------------------------------
Total distributions........................... 0.34 0.44
- --------------------------------------------------------------------------
Net asset value, end of period................ $ 8.41 $6.47
- --------------------------------------------------------------------------
TOTAL RETURN/(a)/............................. 35.14% (42.99)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)............................. $8 $6
Ratios to average net assets:
Net investment income..................... 4.26% 4.67%*
Expenses.................................. 1.49%/(b)/ 1.40%/(b)/*
Portfolio turnover rate................... 105% 121%
Notes to Financial Highlights
- --------------------------------------------------------------------------------
(a)Total returns are historical and assume changes in share price, reinvestment
of dividends and capital gains distributions and do not include the effect
of insurance contract charges. Had the adviser not absorbed a portion of the
expense, total returns would have been lower.
(b)Reflects GEAM's waiver of a portion of the Fund's management fee in an
amount equal to the management fee earned by GEAM with respect to the Fund's
investment in the GE Funds - GE Money Market.
* Annualized for periods less than one year.
**Per share values have been calculated using the average share method.
See Notes to Financial Statements.
9
Statements of Assets Real Estate
and Liabilities December 31, 2009 Securities
Fund
- -------------------------------------------------------------------------------
ASSETS
Investments in securities, at market (cost $54,596,057)......... $68,841,842
Investments in affiliated securities, at market (cost $3,920)... 2,979
Short-term affiliated investments (at amortized cost)........... 771,640
Receivable for investments sold................................. 2,202,932
Income receivables.............................................. 267,020
Receivable for fund shares sold................................. 77,847
Other Assets.................................................... 8,644
- -------------------------------------------------------------------------------
Total Assets.................................................. 72,172,904
- -------------------------------------------------------------------------------
LIABILITIES
Distribution payable to shareholders............................ 25
Payable for investments purchased............................... 1,416,552
Payable for fund shares redeemed................................ 29,650
Payable to GEAM................................................. 20,387
Accrued other expenses.......................................... 124,194
- -------------------------------------------------------------------------------
Total Liabilities............................................. 1,590,808
- -------------------------------------------------------------------------------
NET ASSETS........................................................ $70,582,096
- -------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital paid in................................................. 96,962,899
Undistributed (distribution in excess of) net investment income. 145,577
Accumulated net realized gain (loss)............................ (40,771,224)
Net unrealized appreciation/ (depreciation) on:
Investments................................................... 14,244,844
- -------------------------------------------------------------------------------
NET ASSETS........................................................ $70,582,096
- -------------------------------------------------------------------------------
Class 1:
NET ASSETS........................................................ 70,574,388
Shares outstanding ($0.01 par value; unlimited shares authorized). 8,388,375
Net asset value per share......................................... $8.41
Class 4:
NET ASSETS........................................................ 7,708
Shares outstanding ($0.01 par value; unlimited shares authorized). 916
Net asset value per share......................................... $8.41
See Notes to Financial Statements.
10
Statements of Operations Real Estate
For the year ending December 31, 2009 Securities
Fund
---------------------------------------------------------------------
INVESTMENT INCOME
Income:
Dividend........................................... $ 2,823,693
Interest........................................... 4,693
Interest from affiliated investments............... 2,503
---------------------------------------------------------------------
Total Income......................................... 2,830,889
---------------------------------------------------------------------
Expenses:
Advisory and administrative fees................... 482,342
Distributors Fees (Notes 4)
Class 4.......................................... 26
Transfer agent..................................... 17,899
Directors' fees.................................... 1,665
Custody and accounting expenses.................... 46,841
Professional fees.................................. 21,819
Registration expenses.............................. 3,867
Other expenses..................................... 17,140
---------------------------------------------------------------------
Total expenses before waiver and reimbursement....... 591,599
---------------------------------------------------------------------
Less: Expenses reimbursed by the adviser........... (1,840)
---------------------------------------------------------------------
Net expenses....................................... 589,759
---------------------------------------------------------------------
Net investment income................................ 2,241,130
---------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized (loss) on:
Investments...................................... (17,741,885)
Increase in unrealized appreciation on:
Investments...................................... 35,228,868
---------------------------------------------------------------------
Net realized and unrealized gain on investments.... 17,486,983
---------------------------------------------------------------------
Net increase in net assets resulting from operations. $ 19,728,113
---------------------------------------------------------------------
See Notes to Financial Statements.
11
Statements of Real Estate
Changes in Net Assets Securities
Fund
- --------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended
December 31, December 31,
2009 2008
- --------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investments income.............................................................. $ 2,241,130 $ 3,300,062
Net realized gain (loss) on investments............................................. (17,741,885) (22,034,849)
Net increase (decrease) in unrealized appreciation / (depreciation) on investments.. 35,228,868 (9,872,236)
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations............................................. 19,728,113 (28,607,023)
- --------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class 1........................................................................... (2,058,561) (2,536,696)
Class 4........................................................................... (208) (205)
Return of Capital
Class 1........................................................................... (895,120) (1,496,546)
Class 4........................................................................... (91) (155)
- --------------------------------------------------------------------------------------------------------------------
Total distributions................................................................... (2,953,980) (4,033,602)
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions................... 16,774,133 (32,640,625)
- --------------------------------------------------------------------------------------------------------------------
Share transactions:
Proceeds from sale of shares
Class 1........................................................................... 4,568,082 18,038,954
Class 4........................................................................... -- 10,000
Value of distributions reinvested
Class 1........................................................................... 2,953,681 4,033,242
Class 4........................................................................... 299 360
Cost of shares redeemed
Class 1........................................................................... (13,688,696) (26,117,546)
Class 4........................................................................... -- --
- --------------------------------------------------------------------------------------------------------------------
Net (decrease) from share transactions.............................................. (6,166,634) (4,034,990)
- --------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets............................................... 10,607,499 (36,675,615)
NET ASSETS
Beginning of period................................................................... 59,974,597 96,650,212
- --------------------------------------------------------------------------------------------------------------------
End of period......................................................................... $ 70,582,096 $ 59,974,597
- --------------------------------------------------------------------------------------------------------------------
Undistributed (distribution in excess of)
net investment income, end of period.................................................. $ 145,577 $ 250,999
- --------------------------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES
Class 1
Shares sold............................................................................. 847,735 2,414,396
Issued for distributions reinvested..................................................... 345,053 652,627
Shares redeemed......................................................................... (2,086,754) (2,680,005)
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares.................................................. (893,966) 387,018
- --------------------------------------------------------------------------------------------------------------------
Class 4
Shares sold............................................................................. -- 823
Issued for distributions reinvested..................................................... 35 58
Shares redeemed......................................................................... -- --
- --------------------------------------------------------------------------------------------------------------------
Net increase in fund shares............................................................. 35 881
- --------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
12
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. Organization of the Company
GE Investments Funds, Inc. (the "Company") was incorporated under the laws of
the Commonwealth of Virginia on May 14, 1984 and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Company is composed of fourteen investment
portfolios (collectively the "Funds"), although only the following eleven are
currently being offered: U.S. Equity Fund, S&P 500 Index Fund, Premier Growth
Equity Fund, Core Value Equity Fund, Mid-Cap Equity Fund, Small-Cap Equity
Fund, International Equity Fund, Total Return Fund, Income Fund, Money Market
Fund and Real Estate Securities Fund (the "Fund").
Shares of the Funds of the Company are offered only to insurance company
separate accounts that fund certain variable life insurance contracts and
variable annuity contracts. These insurance companies may include insurance
companies affiliated with GE Asset Management Incorporated ("GEAM"), the
investment adviser and administrator of each of the Funds.
The Company offers two share classes (Class 1 and Class 4) of the Fund as
investment options for variable life insurance and variable annuity contracts.
Class 4 shares were first offered on May 1, 2008, and Fund shares outstanding
prior to May 1, 2008 were designated as Class 1 shares. Each share class has
different fees and expenses, and as a result, each share class will have
different share price and performance. Not all variable contracts offer both
share classes of the Fund.
2. Summary of Significant Accounting Policies
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results may differ from
those estimates.
Accounting Changes
The Financial Accounting Standards Board (FASB) issued FASB Accounting
Standards Codification (ASC) effective for financial statements issued for
interim and annual periods ending after September 15, 2009. The ASC is an
aggregation of previously issued authoritative U.S. generally accepted
accounting principles (GAAP) in one comprehensive set of guidance organized by
subject area. In accordance with the ASC, references to previously issued
accounting standards have been replaced by ASC references. Subsequent revisions
to GAAP will be incorporated into the ASC through Accounting Standards Updates
(ASU).
Subsequent Events
Subsequent events after the balance sheet date through the date that the
financial statements were issued have been evaluated in the preparation of the
Financial Statement.
The following summarizes the significant accounting policies of the Fund:
Security Valuation and Transactions
The Fund's portfolio securities are valued generally on the basis of market
quotations. Equity securities generally are valued at the last reported sales
price on the primary market in which they are traded. Portfolio securities
listed on NASDAQ are valued using the NASDAQ Official Closing Price, which may
not necessarily represent the last sale price. If no sales occurred on the
exchange or NASDAQ that day, the portfolio security generally is valued using
the last reported bid price.
Debt securities (other than short-term securities described below) generally
are valued at an evaluated bid as reported by an independent pricing service.
Values obtained from pricing services are based on recent trading activity and
other relevant information which may include market interest rate curves,
referenced credit spreads and estimated prepayment rates where applicable. In
the absence of a reliable price from such a pricing service, debt securities
may be valued based on dealer supplied valuations or quotations. The Fund's
written or purchased options are valued at the last sales price, or if no sales
occurred that day, at the last reported bid price. Short-term investments of
sufficient credit quality with remaining maturities of sixty days or less at
the time of purchase are valued on the basis of amortized cost, which
approximates market value.
All assets and liabilities of the Fund that are initially expressed in foreign
currency values will be converted into U.S. dollars at the WM/Reuters exchange
rate computed at 11:00 a.m., Eastern time.
13
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
If prices are not readily available for a portfolio security, or if it is
believed that a price for a portfolio security does not represent its fair
value, the security may be valued using procedures approved by the Fund's Board
of Directors that are designed to establish its "fair" value. Those procedures
require that the fair value of a security be established by the fair valuation
committee. The fair valuation committee follows different protocols for
different types of investments and circumstances. The fair value procedures may
be used to value any investment by the Fund in the appropriate circumstances.
Examples of the types of securities that may be fair valued include: thinly
traded or illiquid investments, high-yield securities or foreign securities.
Foreign securities may be valued with the assistance of an independent fair
value pricing service in circumstances where it is believed that they have been
or would be materially affected by events occurring after the close of the
portfolio security's primary market and before the close of regular trading on
the NYSE. This independent fair value pricing service uses a computerized
system to appraise affected securities and portfolios taking into consideration
various factors and the fair value of such securities may be something other
than the last available quotation or other market price.
GEAM may also separately monitor portfolio securities and, consistent with the
Fund's fair value procedures, apply a different value to a portfolio security
than would be applied had it been priced using market quotations or by an
independent fair value pricing service.
Determining the fair value of securities involves the application of both
subjective and objective considerations. Security values may differ depending
on the methodology used to determine their values, and may differ from the last
quoted sale or closing price. No assurance can be given that use of these fair
value procedures will always better represent the price at which the Fund could
sell the affected portfolio security.
Security transactions are accounted for as of the trade date. Realized gains
and losses on investments sold are recorded on the basis of identified cost for
both financial statement and federal tax purposes.
Fair Value Measurements
The Fund adopted ASC 820, Fair Valuation Measurements and Disclosures effective
January 1, 2008. This guidance establishes a new framework for measuring fair
value and expands related disclosures. Broadly, the framework requires fair
value to be determined based on the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction
between market participants. It also establishes a three-level valuation
hierarchy based upon observable and non-observable inputs.
For financial assets and liabilities, fair value is the price the Fund would
receive to sell an asset or pay to transfer a liability in an orderly
transaction with a market participant at the measurement date. In the absence
of active markets for the identical assets or liabilities, such measurements
involve developing assumptions based on market observable data and, in the
absence of such data, internal information that is consistent with what market
participants would use in a hypothetical transaction that occurs at the
measurement date.
Observable inputs reflect market data obtained from independent sources, while
unobservable inputs reflect our market assumptions. Preference is given to
observable inputs. These two types of inputs create the following fair value
hierarchy:
Level 1 -- Quoted prices for identical investments in active markets.
Level 2 -- Quoted prices for similar investments in active markets; quoted
prices for identical or similar investments in markets that are not active;
and model-derived valuations whose inputs are observable or whose
significant value drivers are observable.
Level 3 -- Significant inputs to the valuation model are unobservable.
Policies and procedures are maintained to value investments using the best and
most relevant data available. In addition, GEAM performs periodic reviews of
the methodologies used by independent pricing services including price
validation of individual securities.
The following section describes the valuation methodologies the Fund uses to
measure different financial investments at fair value.
When available, the Fund uses quoted market prices to determine the fair value
of investment securities, and they are included in Level 1. Level 1 securities
primarily include publicly-traded equity securities.
When quoted market prices are unobservable, pricing information is obtained
from an independent pricing vendor.
14
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
The pricing vendor uses various pricing models for each asset class that are
consistent with what other market participants would use. The inputs and
assumptions to the model of the pricing vendor are derived from market
observable sources including: benchmark yields, reported trades, broker/dealer
quotes, issuer spreads, benchmark securities, bids, offers, and other
market-related data. Since many fixed income securities do not trade on a daily
basis, the methodology of the pricing vendor uses available information as
applicable such as benchmark curves, benchmarking of like securities, sector
groupings, and matrix pricing. The pricing vendor considers all available
market observable inputs in determining the evaluation for a security. Thus,
certain securities may not be priced using quoted prices, but rather determined
from market observable information. These investments are included in Level 2
and primarily comprise our portfolio of corporate fixed income, and government,
mortgage and asset-backed securities. In infrequent circumstances, pricing
vendors may provide the Fund with valuations that are based on significant
unobservable inputs, and in those circumstances the investment securities are
included in Level 3.
The Fund uses non-binding broker quotes as the primary basis for valuation when
there is limited, or no, relevant market activity for a specific investment or
for other investments that share similar characteristics. The Fund has not
adjusted the prices obtained. Investment securities priced using non-binding
broker quotes are included in Level 3. As is the case with the primary pricing
vendor, third-party brokers do not provide access to their proprietary
valuation models, inputs and assumptions. Accordingly, GEAM conducts internal
reviews of pricing for all such investment securities periodically to ensure
reasonableness of valuations used in our financial statements. These reviews
are designed to identify prices that appear stale, those that have changed
significantly from prior valuations, and other anomalies that may indicate that
a price may not be accurate. Based on the information available, GEAM believes
that the fair values provided by the brokers are representative of prices that
would be received to sell the assets at the measurement date (exit prices).
Other financial investments are derivative investments that are not reflected
in Total Investments, such as futures, forwards, swaps, and written options
contracts, which are valued based on the unrealized appreciation/depreciation
of the instrument.
The Fund uses closing prices for derivatives included in Level 1, which are
traded either on exchanges or liquid over-the counter markets. Derivative
assets and liabilities included in Level 2 primarily represent interest rate
swaps, cross-currency swaps and foreign currency and commodity forward and
option contracts. Derivative assets and liabilities included in Level 3
primarily represent interest rate products that contain embedded optionality or
prepayment features.
In January 2010, FASB issued ASU 2010-06, Improving Disclosures about Fair
Value Measurements. ASU 2010-06 will require reporting entities to make new
disclosures about the amounts and reasons for significant transfers in and out
of Level 1 and Level 2 fair value measurements and inputs and valuation
techniques used to measure fair value for both recurring and nonrecurring fair
value measurements that fall in either Level 2 or Level 3, and information on
purchases, sales, issuances, and settlements in the roll forward of activity in
Level 3 fair value measures. The new disclosures are effective for interim and
annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements. Those disclosures are
effect for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. GEAM does not believe the adoption of ASU
2010-06 will materially impact the financial statement amounts.
Other financial instruments are derivative instruments that are not reflected
in Total Investments, such as futures, forwards, swaps, and written options
contracts, which are valued based on the unrealized appreciation/depreciation
of the instrument.
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in
Level 1 Level 2 Level 3 Total
---------------------------------------------------------------------
Investments in Securities+ $69,613,482 $2,979 $-- $69,616,461
Other Financial Instruments+ -- -- -- --
+ See Statement of Investments for Industry Classification.
15
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
those securities. For example, money market securities are valued using
amortized cost, in accordance with the Investment Company Act of 1940.
Generally, amortized cost reflects the current fair value of a security, but
since the value is not obtained from a quoted price in an active market, such
securities are reflected as Level 2. Fair value determinations are required for
securities whose value is affected by a significant event that will materially
affect the value of a domestic or foreign security and which occurs subsequent
to the time of the close of the principal market on which such domestic or
foreign security trades but prior to the calculation of the Fund's NAV.
Repurchase Agreements The Fund may enter into repurchase agreement transactions
with respect to instruments that are consistent with the Fund's investment
objectives or policies. The Fund's custodian or a third party custodian takes
possession of the collateral pledged for investments in repurchase agreements
on behalf of the Fund. The Fund values the underlying collateral daily on a
mark-to-market basis to determine that the value, including accrued interest,
is at least equal to 102% of the repurchase price. In the event the seller
defaults and the value of the security declines, or if the seller enters an
insolvency proceeding, realization of the collateral by the Fund may be delayed
or limited.
Security Lending The Fund may loan securities to brokers, dealers, and
financial institutions determined by GEAM to be creditworthy, subject to
certain limitations. The Fund continues to receive the interest and dividends
on the loaned securities during the term of the loan. The loans of securities
are secured by collateral in the form of cash or other liquid assets, which are
segregated and maintained with the custodian in an amount at least equal to
102% of the current market value of the loaned securities. During the term of
the loan, the Fund will record any gain or loss in the market value of its
loaned securities and of securities in which cash collateral is invested. The
Fund will also earn interest, net of any rebate, from securities in which cash
collateral is invested. In the event the counterparty (borrower) does not meet
its contracted obligation to return the securities, the Fund may be exposed to
the risk of loss of reacquiring the loaned securities at prevailing market
prices using the proceeds of the sale of the collateral.
Foreign Currency Accounting records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the prevailing rates of exchange
on a daily basis (on days the New York Stock Exchange is open). Purchases and
sales of securities, income receipts and expense payments denominated in
foreign currencies are translated into U.S. dollars at the prevailing exchange
rate on the respective dates of such transactions.
The Fund does not isolate the portion of the results of operations resulting
from changes in foreign exchange rates of foreign denominated securities from
the fluctuations arising from changes in the market prices of those securities
during the period. Such fluctuations are included in the net unrealized gain or
loss from investments. Net realized gains or losses on foreign currency
transactions represent net gains or losses on sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference between
the amount of net investment income and withholding taxes accrued and the U.S.
dollar amount actually received or paid, and gains or losses between the trade
and settlement date on purchases and sales of securities. Net unrealized
foreign exchange gains and losses arising from changes in the value of other
assets and liabilities as a result of changes in foreign exchange rates are
included as increases or decreases in unrealized appreciation/depreciation on
foreign currency related transactions.
Futures Contracts The Fund may invest in interest rate, financial or stock or
bond index futures contracts subject to certain limitations. The Fund may
invest in futures contracts to manage its exposure to the stock and bond
markets and fluctuations in currency values. Buying futures tends to increase
the Fund's exposure to the underlying instrument while selling futures tends to
decrease the Fund's exposure to the underlying instrument, or hedge other Fund
investments. The Fund will not enter into a transaction involving futures for
speculative purposes. The Fund's risks in using these contracts include changes
in the value of the underlying instruments, non-performance of the
counterparties under the contracts' terms and changes in the liquidity of the
secondary market for the contracts. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange on
which they principally trade.
Upon entering into a futures contract, the Fund is required to pledge to the
broker an amount of cash and/or other assets equal to a certain percentage of
the contract amount, known as initial margin deposit. Subsequent payments,
known as variation margin, are made or received by the Fund each day, depending
on the daily fluctuation in the fair value of the underlying security. The Fund
records an unrealized gain or loss equal to the daily variation margin. Should
market conditions move unexpectedly, the Fund may not achieve the anticipated
16
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
benefits of the futures contracts and may incur a loss. The Fund recognizes a
realized gain or loss on the expiration or closing of a futures contract.
Options The Fund may purchase and write options, subject to certain
limitations. The Fund may invest in options contracts to manage its exposure to
the stock and bond markets and fluctuations in foreign currency values. Writing
puts and buying calls tend to increase the Fund's exposure to the underlying
instrument while buying puts and writing calls tend to decrease the Fund's
exposure to the underlying instrument, or hedge other Fund investments. The
Fund will not enter into a transaction involving options for speculative
purposes. The Fund's risks in using these contracts include changes in the
value of the underlying instruments, non-performance of the counterparties
under the contracts' terms and changes in the liquidity of the secondary market
for the contracts. Options are valued at the last sale price, or if no sales
occurred on that day, at the last quoted bid price.
When the Fund writes an option, the amount of the premium received is recorded
as a liability and is subsequently adjusted to the current fair value of the
option written. Premiums received from writing options that expire unexercised
are treated by the Fund on the expiration date as realized gains from
investments. The difference between the premium and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium is less than the amount paid
for the closing purchase, as a realized loss. When an option is exercised, the
proceeds from the sale of the underlying security or the cost basis of the
securities purchased is adjusted by the original premium received or paid.
Real Estate Investment Trusts Dividend income, attributable to real estate
investment trusts ("REITs"), is recorded based on management's estimate of the
income included in the distributions received. Distributions received in excess
of this amount are recorded as a reduction of the cost of the investments. The
actual amounts of income and return of capital are determined by each REIT only
after its fiscal year-end, and may differ from the estimated amounts.
Investments in Foreign Markets Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
Income Taxes The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for
federal income tax purposes.
The Fund is subject to ASC 740, Income Taxes. ASC 740 provides guidance for
financial accounting and reporting for the effects of income taxes that result
from an entity's activities during the year. ASC 740 also provides guidance
regarding how certain uncertain tax positions should be recognized, measured,
presented and disclosed in the financial statements. ASC 740 requires
evaluation of tax positions taken or expected to be taken in the course of
preparing the Funds' tax returns to determine whether the tax positions are
"more likely than not" of being sustained by the applicable tax authority.
There are no adjustments to the Funds' net assets required under ASC 740. The
Funds' 2006, 2007, 2008 and 2009 fiscal years tax returns are still open to
examination by the Federal and applicable state tax authorities."
At December 31, 2009, information on the tax cost of investments is as follows:
Net Tax
Appreciation/ Undistributed
Net Tax (Depreciation) on Undistributed Long-Term
Cost of Gross Tax Gross Tax Appreciation/ Derivatives Income/ Gains
Investments for Unrealized Unrealized (Depreciation) on Currency and (Accumulated (Accumulated
Tax Purposes Appreciation Depreciation Investments other Net Assets Ordinary Loss) Capital Loss)
- -----------------------------------------------------------------------------------------------------------------------
$63,367,216 $14,763,417 $(8,514,172) $6,249,245 $-- $145,577 $(32,710,007)
Cost of Post October
Investments for Losses (see
Tax Purposes Detail Below)
- --------------------------------
$63,367,216 $(65,618)
17
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
As of December 31, 2009, the Fund has capital loss carryovers, as indicated
below.
Amount Expires
---------------------------------------------------
$7,213,699 12/31/2016
25,496,308 12/31/2017
Any net capital and currency losses incurred after October 31, within the
Fund's tax year, are deemed to arise on the first day of the Fund's next tax
year if the Fund so elects to defer such losses.
The Fund elected to defer losses incurred after October 31, 2009 as follows:
Capital Currency
---------------------------------------------------
$65,618 $--
The tax composition of distributions paid during the years ended December 31,
2009 and December 31, 2008 were as follows:
Long-Term
Ordinary Capital Return of
Income Gains Capital Total
-----------------------------------------------
2009 $2,058,769 $-- $ 895,211 $2,953,980
2008 2,536,901 -- 1,496,701 4,033,602
Distributions to Shareholders The Fund declares and pays dividends from net
investment income annually. The Fund declares and pays net realized capital
gains in excess of capital loss carryforwards distributions annually. The
character of income and gains to be distributed is determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences include (but are not limited to) distributions
from Real Estate Investment Trusts (REITS), and losses deferred due to wash
sale transactions. Reclassifications due to permanent book/tax differences are
made to the Fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. These reclassifications have no impact on net investment income,
realized gains or losses, or the net asset value of the Fund. The calculation
of net investment income per share in the Financial Highlights table excludes
these adjustments.
The reclassifications for the year ended December 31, 2009 were as follows:
Undistributed
(Distribution
in Excess of)
Net Investment Accumulated Paid in
Income Net Realized Gain Capital
-----------------------------------------------
$607,428 $287,783 $(895,211)
Investment Income Corporate actions (including cash dividends) are recorded on
the ex-dividend date, net of applicable withholding taxes, except for certain
foreign corporate actions, which are recorded as soon after ex-dividend date as
such information becomes available. Interest income is recorded on the accrual
basis. All discounts and premiums on bonds are accreted and amortized,
respectively, to call or maturity date, whichever is shorter, using the
effective yield method.
Expenses Fund specific expenses are allocated to the Fund that incurs such
expense and pro rata across share classes. Expenses, other than those incurred
by a specific Fund, are allocated pro rata among Funds and share classes. Such
expenses may include custodial fees, legal and accounting fees, printing costs
and registration fees. All expenses of the Fund are paid by GEAM and reimbursed
by the Fund. Certain class specific expenses (such as transfer agency fees or
distribution fees) are allocated to the class that incurs such expense.
3. Line of Credit
The Company shares a revolving credit facility of up to $150 million with a
number of its affiliates. The credit facility is with its custodian bank, State
Street Bank and Trust Company. The revolving credit facility requires the
payment of a commitment fee equal to 0.15% per annum on the daily unused
portion of the credit facility, payable quarterly. The portion borne by the
Funds generally is borne proportionally based upon net assets. In addition, the
Company has a $100 million uncommitted, unsecured line of credit with State
Street. Generally, borrowings under the credit facilities would accrue interest
at the Federal Funds Rate plus 50 basis points and would be borne by the
borrowing Fund. The maximum amount allowed to be borrowed by any one Fund is
the lesser of (i) its prospectus limitation or (ii) 20% of its net assets. The
credit facilities were not utilized by the Fund during the fiscal year ended
December 31, 2009.
18
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
4. Amounts Paid to Affiliates
GEAM, a registered investment adviser, was retained by the Company's Board of
Directors effective May 1, 1997 to act as investment adviser and administrator
of the Fund. GEAM's compensation for investment advisory and administrative
services is paid monthly based on the average daily net assets of the Fund. The
advisory and administrative fee is stated in the following schedule:
Annualized based on average daily net assets
------------------------------------------------
Advisory and
Administration
Average Daily Net Assets of Fund Fees
------------------------------------------------
First $100 million 0.85%
Next $100 million 0.80%
Over $200 million 0.75%
GEAM waives a portion of the Fund's management fee in the amount equal to the
management fee earned by GEAM with respect to the Funds investment in the GE
Funds - GE Money Market Fund.
Distribution and Service (12b-1) Fees The Company has adopted a Distribution
and Service (12b-1) Plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act
with respect to Class 4 shares of the Fund. Under the Plan, the Fund may
compensate GE Investment Distributors, Inc. ("GEID"), a wholly-owned subsidiary
of GEAM and the Fund's principal distributor, for certain sales services
provided by GEID or other broker dealers and investor services provided by GEID
or other service providers relating to the Fund's Class 4 shares, including
services to owners or prospective owners of variable contracts issued by
insurance companies that offer such share class as an investment option. The
amount of compensation paid under the Plan by the Fund's Class 4 shares may not
exceed 0.45% of the average daily net assets of the Fund attributable to such
share class. The Plan continues in effect from year to year for so long as such
continuance is approved annually by the Board of Directors, including by those
directors who are not interested persons of the Company and who have no direct
or indirect financial interest in the operation of the Plan or in any agreement
related to it.
GENPACT performs certain accounting and certain administration services not
provided by GEAM. For the period ending December 31, 2009, $885 was charged to
the Fund.
Directors' Compensation The Fund pays no compensation to its directors who are
officers or employees of GEAM or its affiliates. Directors who are not such
officers or employees also serve in a similar capacity for other funds advised
by GEAM. Compensation paid to unaffiliated directors are reflected on the
Statement of Operations. These fees are allocated pro rata across all of the
mutual fund platforms and share classes served by the directors, including the
Fund, and are based upon the relative net assets of each fund within such
platforms. (For additional information about directors compensation please
refer to the Statement of Additional Information.)
5. Sub-advisory Fees
Pursuant to an investment sub-advisory agreement with GEAM, Urdang Securities
Management, Inc. ("Urdang") is the Sub-Adviser to the Fund. Urdang is
responsible for the day-to-day portfolio management of the assets of the Fund,
including the responsibility for making decisions to buy, sell or hold a
particular security, under the general supervision of GEAM and the Board.
For their services, GEAM pays Urdang monthly sub-advisory fees which are
calculated as a percentage of the average daily net assets of the Fund.
6. Investment Transactions
Purchases and Sales of Securities The cost of purchases and the proceeds from
sales of investments, other than short-term securities and short-term options,
for the period ended December 31, 2009 were as follows:
U.S. Government Securities
-----------------------------------------------------
Purchases Sales
-----------------------------------------------------
$ -- $ --
Other Securities
-----------------------------------------------------
Purchases Sales
-----------------------------------------------------
$50,019,454 $66,007,316
19
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the Real Estate Securities Fund, a
series of GE Investments Funds, Inc., as of December 31, 2009, and the related
statement of operations for the year then ended, statements of changes in net
assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years or periods in the five-year period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of December 31, 2009 by
correspondence with the custodian and brokers, or by other appropriate auditing
procedures where replies from brokers were not received. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Real Estate Securities Fund as of December 31, 2009, the results of its
operations, changes in its net assets and financial highlights for each of the
years or periods described above, in conformity with U.S. generally accepted
accounting principles.
/s/ KPMG LLP
Boston, Massachusetts
February 25, 2010
20
Advisory and Administrative Agreement Renewal (unaudited)
- ---------------------------------------------------------------
The Board of Directors of the GE Investments Funds, Inc. (the "Board"),
including the independent Board members, considered and all those that were
present unanimously approved the continuance of the Fund's Investment Advisory
and Administration Agreement with GE Asset Management Incorporated ("GEAM") and
the Investment Sub-Advisory Agreement with the Fund's sub-adviser, Urdang
Securities Management, Inc. ("Urdang"), at meetings held on December 4 and
December 11, 2009.
In considering whether to approve the Fund's investment advisory and
sub-advisory agreements, the Board members considered and discussed a
substantial amount of information and analysis provided, at the Board's
request, by GEAM and Urdang. The Board members also considered detailed
information regarding performance and expenses of other investment companies,
including those with similar investment objectives and sizes, which was
prepared by independent third party providers, Lipper Analytical Services Inc.
("Lipper") and Morningstar, Inc. ("Morningstar"). The Board noted that GEAM
does not manage any other mutual funds or investment products with the same
investment strategy as the Fund. The Board had the opportunity to ask questions
and request additional information in connection with its considerations.
Before approving the Fund's advisory and sub-advisory agreements, the Board
members reviewed the information provided with management of GEAM and with
independent legal counsel. The Board members also reviewed a memorandum
prepared by independent legal counsel discussing the legal standards for the
consideration of the proposed continuances. The independent Board members
discussed the proposed continuances in detail during a private session with
their independent legal counsel at which no representatives of GEAM or Urdang
were present. The independent Board members and their independent legal counsel
requested, and received and considered, additional information from GEAM
following these sessions.
In advance of the meetings, and in response to their request, the Board members
received from GEAM written responses to their inquiries, which included
substantial exhibits and other materials related to GEAM's business and the
services it provides to the Fund. Also in advance of the meetings, the Board
members received from Urdang a written response to a letter of inquiry prepared
by GEAM at the Board's request, which included substantial exhibits and other
materials related to the business of, and services provided by, Urdang. The
Board members took into account their multi-year experience as Board members
and particularly their consideration of these types of agreements in recent
years. The information was presented in a manner to facilitate comparison to
prior periods and to reflect certain enhancements. To focus their review, the
Board members asked GEAM management and Urdang, in their oral presentations, to
highlight material differences from the information presented in recent years.
During the meetings, the Board members had an opportunity to discuss this
information with GEAM managers, including senior executives, representatives
from the legal, compliance and finance departments, and investment personnel.
The Board members also had an opportunity to hear presentations by
representatives of Urdang. The Board members posed questions to these
representatives and engaged in substantive discussions with them concerning
each of their investment processes.
In reaching their determinations relating to continuance of the Fund's
investment advisory and sub-advisory agreements, the Board members considered
all factors that they deemed relevant, including the factors discussed below.
In their deliberations, the Board members did not identify any particular
information that was all-important or controlling, and each Board member may
have attributed different weights to the various factors. In particular, the
Board members focused on the following:
The Nature, Extent And Quality Of Services Provided.
The Board members reviewed the services provided by GEAM and Urdang, taking
into account their extensive past experiences with GEAM and their multi-year
experience with Urdang. They focused on the favorable attributes of GEAM,
including (i) an investment philosophy oriented toward long-term performance;
(ii) effective processes used for overseeing sub-advisers; (iii) effective
processes used for providing Fund administration, including controllership and
compliance functions and oversight of the performance of other companies that
provide services to the Fund; (iv) highly skilled professionals including
analysts, research professionals, traders and portfolio managers with a depth
of experience involving the types of Funds they oversee; (v) access to
significant technological resources from which the Fund may benefit; and (vi) a
favorable history and reputation. The Board members discussed with senior
officers of GEAM the personnel changes made, and proposed to be made, by GEAM.
The Board members noted that the Fund represents only a small portion of the
assets managed by GEAM, but benefits from a full array of services and
resources provided by GEAM.
21
Advisory and Administrative Agreement Renewal (unaudited)
- ---------------------------------------------------------------
In connection with their consideration of the services provided by Urdang, the
Board members focused on Urdang's favorable attributes relating to its
investment philosophy and discipline, high caliber investment and trading
personnel, systems and other resources, including research capabilities, and
favorable history and reputation.
In light of the foregoing, the Board, including the independent Board members,
concluded that the services provided by GEAM and Urdang continue to be
satisfactory.
Investment Performance Of The Fund And The Sub-Adviser.
The Board members considered the investment performance of the Fund for various
periods. The Board members reviewed detailed comparisons of the performance of
the Fund with the relevant securities indices and peer groupings of mutual
funds prepared by Lipper and Morningstar with respect to various periods. The
Board members engaged in detailed discussions with GEAM management and
representatives of Urdang about each of their investment processes and
performance results. These discussions focused on the Fund's investment
objective, the number and experience of portfolio management and supporting
research personnel, the investment style and approach employed and the likely
market cycles for the investment style.
The Board, including the independent Board members, concluded that the Fund's
performance was acceptable overall taking into consideration the factors
discussed above.
Cost Of The Services Provided And Profits Realized From The Relationship With
The Fund.
The Board members considered the fees paid to GEAM by the Fund, as well as
those paid to Urdang by GEAM, and the cost of the services provided to the Fund
by GEAM and Urdang . The Board members reviewed the information they had
requested from GEAM and Urdang concerning their profitability. The Board
members considered the profit margin information for GEAM's investment company
business as a whole, as well as GEAM's profitability data for the Fund. The
Board members reviewed GEAM's assumptions and the methods of cost allocation
used by GEAM in preparing Fund-specific profitability data. The Board members
also discussed with GEAM the basis for its belief that the methods of
allocation used were reasonable for each area of its business. The Board
members also reviewed the assumptions and cost allocation methods used by
Urdang in preparing its profitability data.
Information was presented regarding the financial condition of GEAM and Urdang
for various past periods. The Board members noted and discussed the additional
services provided by GEAM to the Fund compared to other investment products
managed by GEAM, and noted the fact that GEAM, and not the Fund, pays the
sub-advisory fees to Urdang. The Board members were also provided a study
conducted by the Investment Company Institute that discusses and compares
advisory fees and services for mutual funds and institutional separate
accounts. The Board members determined that GEAM and Urdang should be entitled
to earn a reasonable level of profits for the services they provide to the
Fund. The Board members also recognized that GEAM had made significant
investments in its business and had not fully recovered the sums invested. The
Board also considered that, in the face of overall declining assets and
revenues over the course of the past year, GEAM continues to make a substantial
investment in fulfilling its obligations to the Fund and supporting its
Fund-related activities.
Based on their review, the Board, including the independent Board members,
concluded that they were satisfied that the level of profitability achieved by
GEAM and Urdang from their relationship with the Fund was not unreasonable or
excessive.
The extent to which economies of scale would be realized as the Fund grows and
whether fee levels would reflect such economies of scale.
Although the Board noted that the Fund did not experience significant growth in
assets over the past year, the Board members considered the extent to which
economies of scale would be realized as the Fund grows, and whether fee levels
reflect these economies of scale for the benefit of Fund investors.
The Board members considered the substantial infrastructure investments that
GEAM has made with respect to its operations and its commitment to continue
investing resources to enhance services to Fund shareholders. The Board members
recognized the benefits to the Fund of GEAM's past investment in its operations
through the expenditure of sums to support its substantial infrastructure, and
that, with respect to all GEAM managed mutual funds, GEAM has not yet fully
recouped that investment. The Board members reviewed the applicable advisory
fee breakpoints for the Fund. They recognized the economies of scale benefits
that would be derived by the
22
Advisory and Administrative Agreement Renewal (unaudited)
- ---------------------------------------------------------------
Fund as a result of the breakpoint fee structure in the event that average
daily net assets exceed $100 million. The Board members also recognized the
benefits to the Fund of being able to leverage a favorable cost structure
achieved with respect to the Fund's other operating expenses as a result of
GEAM's large overall base of assets under management and its vendor management
practices.
Comparison Of Services To Be Rendered And Fees To Be Paid.
The Board members discussed the services provided to the Fund by GEAM and
Urdang, and the fees charged for those services. The Board members reviewed
information concerning the fee and expense ratios for the Fund, and comparative
information with respect to similar products. They discussed that the Fund's
figures were within the applicable peer group range, although at the higher end
of the range. The Board members also reviewed comparative fee information with
respect to any comparable mutual fund or other client accounts managed by
Urdang. The Board, including the independent Board members, concluded that,
based on this information, the Fund's advisory and sub-advisory fees were
reasonable in relation to the services provided to the Fund.
Fall-Out Benefits.
The Board members considered other actual and potential financial benefits that
GEAM and Urdang may derive from their respective relationships with the Fund,
including, to the extent applicable, soft dollar commission benefits generated
through Fund portfolio transactions. The Board members noted, however, that the
Fund benefits from the vast array of resources available through GEAM, and that
the Fund represents only a small portion of the assets managed by GEAM.
Conclusion.
No single factor was determinative to the Board's decision. Based on their
discussion and such other matters as were deemed relevant, the Board, including
the independent Board members, concluded that renewal of the advisory and
sub-advisory agreements were in the best interests of the shareholders of the
Fund.
23
Additional Information (unaudited)
- ---------------------------------------------------------------
Information about Directors and Executive Officers:
The business and affairs of the Company are managed under the direction of the
Company's Board of Directors. Information pertaining to the Directors and
officers of the Company is set forth below.
Interested Directors and Executive Officers
- --------------------------------------------------------------------------------
Michael J. Cosgrove
- --------------------------------------------------------------------------------
Address c/o GEAM 3001 Summer St. Stamford, CT 06905
Age 60
Position(s) Held with Fund Chairman of the Board and President
Term of Office and Length of Time Served Until successor is elected and
qualified - 13 years
Principal Occupation(s) During Past 5 years President and Chief Executive
Officer - Mutual Funds and Intermediary Business since March 2007; Executive
Vice President of GEAM from February 1997 to March 2007; Director of GEAM since
1988; Vice President, GE Capital Corporation, an indirect wholly-owned
subsidiary of GE, since December 1999; Executive Vice President - Sales and
Marketing of GEAM, a wholly-owned subsidiary of GE that is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, from
March 1993 to March 2007.
Number of Portfolios in Fund Complex Overseen by Director 51
Other Directorships Held by Director Chairman of the Board and President of GE
Funds since 1993, and GE Institutional Funds since its inception; Trustee of
General Electric Savings & Security Trust, General Electric S&S Income Fund,
General Electric S&S Program Mutual Fund ("GE Savings & Security Funds"), Elfun
Funds, General Electric Insurance Plan Trust, General Relief Loan Fund, and
General Electric Pension Trust since 1988; Trustee of Fordham University since
2002; Trustee of GE Volunteers since 1993; Director, GE Asset Management
(Ireland) since February 1999; Director, GE Asset Management Funds Plc., GE
Asset Canada Company, and GE Asset Management Limited since 1998.
- --------------------------------------------------------------------------------
Matthew J. Simpson
- --------------------------------------------------------------------------------
Address c/o GEAM 3001 Summer St. Stamford, CT 06905
Age 48
Position(s) Held with Fund Director and Executive Vice President
Term of Office and Length of Time Served Until successor is elected and
qualified - 2 years
Principal Occupation(s) During Past 5 years Executive Vice President, General
Counsel and Secretary of GEAM since July 2007; Senior Vice President and
General Counsel - Marketing and Client Services (formerly Asset Management
Services), at GEAM and Senior Vice President and General Counsel of GEAMS from
February 1997 to June 2007; Vice President and Associate General Counsel of
GEAM from October 1992 to February 1997; Secretary of Fund from 1997 to June
2007; Vice President of Fund from September 2003 to June 2007; Vice President
of GE Institutional Funds from September 2003 to June 2007; Secretary of GE
Institutional Funds and GE LifeStyle Funds from 1997 to June 2007; Vice
President of Elfun Funds and GE Savings & Security Funds from October 2003 to
June 2007; Assistant Secretary of Elfun Funds and GE Savings & Security Funds
from 1998 to June 2007.
Number of Portfolios in Fund Complex Overseen by Director 51
Other Directorships Held by Director Trustee of GE Funds, GE Institutional
Funds, Elfun Funds and GE Savings & Security Funds since July 2007.
24
Additional Information (unaudited)
- ---------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Scott H. Rhodes
- --------------------------------------------------------------------------------
Address c/o GEAM 3001 Summer St. Stamford, CT 06905
Age 49
Position(s) Held with Fund Treasurer
Term of Office and Length of Time Served Until successor is elected and
qualified - 3 years
Principal Occupation(s) During Past 5 years GEAM Mutual Funds Operations
Manager since September 2005; Treasurer of GE Institutional Funds, GE LifeStyle
Funds and GE Investments Funds since November 2005 and Elfun Funds and GE
Savings & Security Funds since September 2005; from August 2004 to September
2005 Vice President, U.S. Trust Company, N.A. and Assistant Treasurer of
Excelsior Funds, Inc., Excelsior Funds Trust, and Excelsior Tax Exempt Funds,
Inc.; from January 2004 to August 2004, Vice President BlackRock Financial
Management, Inc.; from December 1996 to November 2003, Controller - Mutual
Funds, American Skandia Investment Services, Inc. and Assistant Treasurer of
American Skandia Trust and American Skandia Advisor Funds, Inc.
Number of Portfolios in Fund Complex Overseen by Director N/A
Other Directorships Held by Director N/A
- --------------------------------------------------------------------------------
Jeanne M. LaPorta
- --------------------------------------------------------------------------------
Address c/o GEAM 3001 Summer St. Stamford, CT 06905
Age 44
Position(s) Held with Fund Vice President and Secretary
Term of Office and Length of Time Served Until successor is elected and
qualified - 5 years (Vice President); 3 years (Secretary)
Principal Occupation(s) During Past 5 years Senior Vice President and Deputy
General Counsel at GE Asset Management since October 2007; Vice President and
Associate General Counsel - Marketing and Client Services (formerly Asset
Management Services) at GEAM from May 1997 to October 2007; Vice President and
Assistant Secretary of GE Funds and GE Institutional Funds from September 2003
to July 2007; Vice President and Secretary of GE Funds and GE Institutional
Funds since July 2007; Vice President and Assistant Secretary of Elfun Funds
and GE Savings & Security Funds since October 2003.
Number of Portfolios in Fund Complex Overseen by Director N/A
Other Directorships Held by Director N/A
25
Additional Information (unaudited)
- ---------------------------------------------------------------
Non-Interested Directors
- --------------------------------------------------------------------------------
John R. Costantino
- --------------------------------------------------------------------------------
Address c/o GEAM 3001 Summer St. Stamford, CT 06905
Age 63
Position(s) Held with Fund Director
Term of Office and Length of Time Served Until successor is elected and
qualified - 13 years
Principal Occupation(s) During Past 5 years General Partner, NGN Capital LLC
since 2006; Managing Director, Vice President of Walden Capital Management
since 1996.
Number of Portfolios in Fund Complex Overseen by Director 43
Other Directorships Held by Director Trustee of GE Funds since 1993, GE
Institutional Funds since its inception; Trustee of Fordham University from
1989 to 1995 and 2001 to 2007 and Trustee Emeritus since 2007; Trustee of
Neuro Science Research Institute since 1986; Trustee of Gregorian University
Foundation from 1992 to 2007; Director of Artes Medical from 2006 to 2008.
- --------------------------------------------------------------------------------
William J. Lucas
- --------------------------------------------------------------------------------
Address c/o GEAM 3001 Summer St. Stamford, CT 06905
Age 62
Position(s) Held with Fund Director
Term of Office and Length of Time Served Until successor is elected and
qualified - 13 years
Principal Occupation(s) During Past 5 years Vice President and Treasurer of
Fairfield University since 1983.
Number of Portfolios in Fund Complex Overseen by Director 43
Other Directorships Held by Director Trustee of GE Funds since 1993, and GE
Institutional Funds since its inception.
- --------------------------------------------------------------------------------
Robert P. Quinn
- --------------------------------------------------------------------------------
Address c/o GEAM 3001 Summer St. Stamford, CT 06905
Age 74
Position(s) Held with Fund Director
Term of Office and Length of Time Served Until successor is elected and
qualified - 13 years
Principal Occupation(s) During Past 5 years Retired since 1983 from Salomon
Brothers Inc.
Number of Portfolios in Fund Complex Overseen by Director 43
Other Directorships Held by Director Trustee of GE Funds since 1993, and GE
Institutional Funds since its inception; Trustee, St. Francis Hospital Corp.
- --------------------------------------------------------------------------------
The Statement of Additional Information for the Fund includes additional
information about the Directors and Officers and is available, without charge,
upon request by calling 1-800-493-3042.
26
Investment Team (unaudited)
- ---------------------------------------------------------------
Investment Adviser and Administrator
GE Asset Management Incorporated
Board of Directors
Michael J. Cosgrove, Chairman
John R. Costantino
William J. Lucas
Robert P. Quinn
Matthew J. Simpson
Secretary
Jeanne M. LaPorta
Assistant Secretaries
Joseph A. Carucci
Joon Won Choe
Kimberley Costello
Michelle Matzelle
Treasurer
Scott H. Rhodes
Assistant Treasurers
Scott R. Fuchs
Christopher M. Isaacs
Distributor
GE Investment Distributors, Inc.
Member FINRA and SIPC
Counsel
Sutherland, Asbill & Brennan, LLP
Custodian
State Street Bank & Trust Company
Independent Registered Public Accounting Firm
KPMG LLP
Officers of the Investment Adviser
James W. Ireland, President and Chief Executive Officer
Cheryl H. Beacock, Senior Vice President, Human Resources
Daniel O. Colao, Executive Vice President, Chief Financial Officer
Michael J. Cosgrove, President and Chief Executive Officer - Mutual Funds &
Intermediary Business
Paul M. Colonna, President and Chief Investment Officer - Fixed Income
Investments
Amiel Goldberg, Senior Vice President, Chief Risk Officer
Ralph R. Layman, President and Chief Investment Officer - Public Equity
Investments (since July 2009)
Maureen B. Mitchell, President - Institutional Sales and Marketing (since July
2009)
Matthew J. Simpson, Executive Vice President, General Counsel and Secretary
Judith A. Studer, Chief Market Strategist (since July 2009)
Don W. Torey, President - Alternative Investments
John J. Walker, Executive Vice President, Chief Operating Officer
David Wiederecht, President and Chief Investment Officer - Investment Strategies
27
Investment Adviser
GE Asset Management Incorporated
3001 Summer Street
PO Box 7900
Stamford, CT 06904-7900
Distributor
GE Investment Distributors, Inc.
member FINRA and SIPC
3001 Summer Street
PO Box 7900
Stamford, CT 06904-7900
The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission for the first and third quarters of each
fiscal year on Form N-Q. The Fund's Forms N-Q, as well as a description of
the policies and procedures that the Fund uses to determine how to vote
proxies (if any) relating to portfolio securities is available without
charge (i) upon request, by calling 1-800-493-3042; (ii) on the Fund's
website at http://www.geam.com; and (iii) on the Commission's website at
http://www.sec.gov. The Fund's Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC--information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to
portfolio securities during the most recently disclosed 12-month period
ended June 30 is available without charge (i) through the Fund's website at
http://www.geam.com; and (ii) on the Commission's website at
http://www.sec.gov.
[LOGO] GE
GE Investments Funds, Inc.
Small-Cap Equity Fund
Annual Report
December 31, 2009
[LOGO] GE
GE Investments Funds, Inc.
Small-Cap Equity Fund Contents
- ------------------------------------------------------------
Notes to Performance......................................... 1
Manager Review and Schedule of Investments................... 2
Notes to Schedule of Investments............................. 11
Financial Statements
Financial Highlights...................................... 12
Statement of Assets and Liabilities....................... 13
Statement of Operations................................... 14
Statements of Changes in Net Assets....................... 15
Notes to Financial Statements............................. 16
Report of Independent Registered Public Accounting Firm...... 24
Advisory and Administrative Agreement Approvals and Renewals. 25
Additional Information....................................... 28
Investment Team.............................................. 31
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
Notes to Performance December 31, 2009
- ---------------------------------------------------------------------
Information on the following performance pages relating
to the GE Investments Small-Cap Equity Fund one year total return and Schedule
of Investments is audited. All other information, including the portfolio
manager Q&A pages, is unaudited.
Total returns take into account changes in share price and assume reinvestment
of all dividends and capital gains distributions, if any. Total returns shown
are net of Fund expenses but do not reflect fees and charges associated with
the variable contracts such as administrative fees, account charges and
surrender charges, which, if reflected, would reduce the Fund's total returns
for all periods shown.
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be higher or lower than the performance
data quoted. Periods less than one year are not annualized. Please call
800-493-3042 or visit the Fund's website at http://www.geam.com for the most
recent month-end performance data.
An investment in a Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency. An investment in a Fund is subject to risk, including
possible loss of principal invested.
The Russell* 2000 Index (Russell 2000(R)) is an unmanaged index and does not
reflect the actual cost of investing in the instruments that comprise the index.
The Russell 2000 Index is a market capitalization-weighted index consisting of
2,000 of the smallest U.S.-domiciled publicly traded common stocks that are
included in the Russell 3000(R) Index. The Russell 3000(R) Index is comprised
of the 3,000 largest U.S. domiciled companies. The results shown for the
foregoing index assume the reinvestment of net dividends or interest.
The peer universe of the underlying annuity funds used in our peer group
average return calculation is based on the blend of Morningstar peer
categories, as shown. Morningstar is an independent mutual fund rating service.
A Fund's performance may be compared to or ranked within a universe of mutual
funds with investment objectives and policies similar but not necessarily
identical to the Fund's.
(C)2009 Morningstar, Inc. All Rights Reserved. The information contained
herein: (1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is no warranted to be accurate, complete
or timely. Neither Morningstar nor its content providers are responsible for
any damage or losses relating from any use of this information. Past
performance is no guarantee or future results.
- --------------
GE Investment Distributors, Inc., Member of FINRA & SIPC, is the principal
underwriter and distributor of the GE Investment Funds, Inc. and a wholly owned
subsidiary of GE Asset Management Incorporated, the investment adviser of the
Fund.
*Russell Investment Group owns the Russell Index data, including all applicable
trademarks and copyrights, used by GE Asset Management Incorporated in these
materials. Any unauthorized use or redistribution of such Russell Index data
is strictly prohibited. Russell Investment Group is not responsible for the
configuration of this material or for any inaccuracy in GE Asset Management
Incorporated's presentation thereof.
1
Small-Cap Equity Fund
- --------------------------------------------------------------------------------
[PHOTO] Judith A. Studer
Judith A. Studer
The Small-Cap Equity Fund utilizes a multiple sub-adviser Fund structure that
utilizes several sub-advisers to manage the Fund's assets. The Small-Cap Equity
Fund is managed by Judith A. Studer, who is vested with oversight authority
over the Fund's subadvisers that provide day-to-day management of the assets of
the Fund allocated to them. Ms. Studer has full discretion in determining the
assets that are allocated to each sub-adviser. The current sub-advisers of the
Fund are as follows: Palisade Capital Management L.L.C.; Champlain Investment
Partners, LLC; GlobeFlex Capital, LP; and SouthernSun Asset Management, Inc.
Please refer to the Fund prospectus for more information regarding each
sub-adviser.
Judith A. Studer is the Chief Market Strategist and a Director at GE Asset
Management. She has led the team of portfolio managers for the Small-Cap Equity
Fund since October 2009. Ms. Studer joined GE Asset Management in August 1984
and has held various positions at GE Asset Management including Senior Vice
President -- U.S. Equities from 1991 to 1995, Senior Vice President --
International Equities from 1995 to 2006, President -- Investment Strategies
from July 2006 to June 2007, and President -- U.S. Equities from June 2007 to
July 2009.
Q. How did the Small-Cap Equity Fund perform compared to its benchmark and the
Morningstar peer group for the twelve-month period ended December 31, 2009?
A. For the twelve-month period ended December 31, 2009, the Small-Cap Equity
Fund returned 30.88% for Class 1 shares and 30.31% for Class 4 shares. The
Russell 2000 Index, the Fund's benchmark, returned 27.17% and the Fund's
Morningstar peer group of 142 US Insurance Small Blend funds returned an
average of 31.04% for the same period.
Q. What market conditions impacted Fund performance?
A. In the middle of the first quarter of 2009, U.S. equities broke their
November 2008 lows and experienced sharp price declines as troubles in the
credit markets and deteriorating economic data continued to cast a cloud
over world markets. In March, however, U.S. equity markets began to discount
the end of the recession after seeing "green shoots" and abruptly reversed
course to begin a strong springtime rally that continued through year-end.
The Russell 2000 Index finished the year with a solid 27.2% gain -- its
highest annual total return since 2003 and a remarkable recovery from the
March lows when the Index was down over 30% for the year.
Q. What were the primary drivers of Fund performance?
A. The Fund has outperformed the Russell 2000 Index over the last twelve
months, returning 30.9% for Class 1 shares compared to the benchmark return
of 27.2%. The outperformance, spread across six sectors, was most pronounced
in the financials sector where a significant underweight position
complemented by strong stock selection returned 22.19%. The financial stocks
in the Russell 2000 Index declined 1.17% over the same twelve-month period.
An overweight position in the energy sector was also enhanced by strong
stock selection and benefited the Fund's performance. An underweight in
utilities and good stock selection in the industrials and health care
sectors were also positive contributors to Fund performance over the last
twelve months.
Partially offsetting this positive performance for the twelve-month period
was a large underweight and weak stock selection in the information
technology sector. Lagging security selection in the consumer discretionary
and materials sectors also resulted in relative underperformance.
Q. Were there any significant changes to the Fund during the period?
A. There have been no significant changes to the Fund's positioning over the
last twelve months. The largest portfolio underweights
2
- --------------------------------------------------------------------------------
[GRAPHIC]
continue to be in financials and information technology, with overweight
positions in consumer staples and industrials remaining consistent over the
last twelve months. Effective October 1, 2009, the GE Investments Small-Cap
Equity Fund is managed by Judith Studer, who is vested with oversight
authority over the Fund's sub-advisers that provide day-to-day management of
the assets of the Fund allocated to them. Ms. Studer has full discretion in
determining the assets that are allocated to each adviser. We continue to
believe the Fund's multi-sub-adviser approach will enhance the Fund's
performance over the long-term. The current sub-advisers have managed the
Fund since October 1, 2008 and we remain confident in their abilities and
the investment approaches, which have brought them success in the past.
3
Small-Cap Equity Fund
- --------------------------------------------------------------------------------
Understanding Your Fund's Expenses
As a shareholder of the Fund you incur ongoing expenses, which include
portfolio management fees, professional fees, administrative fees and other
Fund expenses. The following example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors during the period. The information in the
following table is based on an investment of $1,000, which is invested at the
beginning of the period and held for the entire six-month period ended
December 31, 2009.
Actual Expenses
The first section of the table provides information about actual account values
and actual expenses. You may use the information in this section, together with
the amount you invested, to estimate the expenses that you paid over the
period. To do so, simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number given for your class under the heading "Expenses Paid During Period."
Hypothetical Example for Comparison Purposes
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and
an assumed rate of return of 5% per year before expenses, which is not the
Fund's actual return. You may use this information to compare the ongoing costs
of investing in the Fund and other funds. To do so, compare this 5%
hypothetical example with the 5% hypothetical examples that appear in the
shareholders reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
July 1, 2009 - December 31, 2009
- ------------------------------------------------------------------------------------------
Account value at the Account value at the Expenses paid
beginning of the period ($) end of the period ($) during the period ($)*
- ------------------------------------------------------------------------------------------
Actual Fund Return**
- ------------------------------------------------------------------------------------------
Class 1 1,000.00 1,205.67 8.45
Class 4 1,000.00 1,201.97 11.04
- ------------------------------------------------------------------------------------------
Hypothetical 5% Return (2.5% for the period)
- ------------------------------------------------------------------------------------------
Class 1 1,000.00 1,017.39 7.73
Class 4 1,000.00 1,015.06 10.11
- ------------------------------------------------------------------------------------------
*Expenses are equal to the Fund's annualized expense ratio of 1.52% for Class 1
Shares and 1.99% for Class 4 Shares (for the period July 1, 2009--December 31,
2009), multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period)
**Actual Fund Returns for the six-month period ended December 31, 2009 were as
follows: 20.57% for Class 1 shares, and 20.20% for Class 4 shares.
4
Small-Cap Equity Fund
- --------------------------------------------------------------------------------
Change in Value of a $10,000 Investment
Class 1 Shares
- --------------------------------------------------------------------------------
[CHART]
Small-Cap Equity Fund Russell 2000 Index
--------------------- ------------------
28-Apr-00 10,000.00 10,000.00
1-Dec-00 11,325.90 9,650.02
1-Dec-01 12,455.23 9,896.45
1-Dec-02 10,729.52 7,876.43
1-Dec-03 13,316.94 11,601.44
1-Dec-04 15,334.17 13,727.92
1-Dec-05 16,795.59 14,348.21
1-Dec-06 19,023.86 16,983.05
1-Dec-07 19,478.46 16,712.22
1-Dec-08 12,156.12 11,065.13
1-Dec-09 15,910.22 14,071.26
- --------------------------------------------------------------------------------
Average Annual Total Return
for the Periods Ended December 31, 2009
- --------------------------------------------------------------------------------
Class 1 Shares (Inception date: 4/28/00)
- --------------------------------------------------------------------------------
One Five Since Ending Value of a
Year Year Inception $10,000 Investment
--------------------------------------------------------------------------
Small-Cap Equity Fund 30.88% 0.74% 4.91% $15,910
--------------------------------------------------------------------------
Russell 2000 Index 27.17% 0.50% 3.59% $14,071
--------------------------------------------------------------------------
Morningstar peer group average* 31.04% 0.23%
--------------------------------------------------------------------------
Class 4 Shares
- --------------------------------------------------------------------------------
[CHART]
Small-Cap Equity Fund Russell 2000 Index
--------------------- ------------------
5/1/2008 10,000.00 10,000.00
6/1/2008 9,535.65 9,654.09
9/1/2008 8,756.22 9,546.67
12/1/200 6,280.21 7,053.10
3/1/2009 5,617.81 5,998.43
6/1/2009 6,808.46 7,239.42
9/1/2009 7,856.56 8,635.07
12/1/200 8,183.56 8,969.26
- --------------------------------------------------------------------------------
Total Returns
for the Periods Ended December 31, 2009
- --------------------------------------------------------------------------------
Class 4 Shares (Inception date: 5/1/08)
- --------------------------------------------------------------------------------
One Since Ending Value of a
Year Inception $10,000 Investment
---------------------------------------------------------------------
Small-Cap Equity Fund 30.31% -11.30% $8,184
---------------------------------------------------------------------
Russell 2000 Index 27.17% -6.31% $8,969
---------------------------------------------------------------------
Morningstar peer group average** 31.04%
---------------------------------------------------------------------
Investment Profile [CHART]
A mutual fund designed for investors
who seek long-term growth of capital
by investing at least 80% of its net
assets in common and preferred stocks
and other types of equity securities
of small-cap companies under normal
circumstances. The Fund uses a
multi-sub-adviser investment strategy
that combines growth, value and core
investment management styles.
Portfolio Composition as of December 31, 2009
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $54,279 (in thousands)
[CHART]
Healthcare 16.7%
Industrials 15.6%
Information Technology 15.3%
Consumer Discretionary 15.3%
Financials 10.6%
Short-Term 8.1%
Consumer Staples 7.8%
Energy 5.0%
Materials 3.8%
Utilities 1.2%
Telecommunication Services 0.6%
Other Investments 0.0%***
Top Ten Largest Equity Holdings
as of December 31, 2009
as a % of Market Value
----------------------------------------
Interactive Data Corp. 1.16%
----------------------------------------
Mednax, Inc. 1.15%
----------------------------------------
Chattem, Inc. 1.15%
----------------------------------------
John Wiley & Sons, Inc. (Class A) 1.15%
----------------------------------------
Sensient Technologies Corp. 1.11%
----------------------------------------
HMS Holdings Corp. 1.10%
----------------------------------------
HCC Insurance Holdings, Inc. 1.05%
----------------------------------------
Jarden Corp. 0.95%
----------------------------------------
Genesee & Wyoming Inc. (Class A) 0.94%
----------------------------------------
Dril-Quip, Inc. 0.93%
----------------------------------------
* Morningstar performance comparisons are based on average annual total returns
for the one year and five-year periods indicated in the Small Blend peer
group consisting of 142 and 104 underlying annuity funds, respectively.
**Morningstar performance comparisons are based on average annual total returns
for the one year period indicated in the Small Blend peer group consisting of
142 underlying annuity funds.
***Less than 0.01%.
See Notes to Performance on page 1 for further information, including an
explanation of Morningstar peer categories.
Past performance does not predict future performance and the graph and table do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions on the redemption of Fund shares.
5
Small-Cap Equity Fund
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
Small-Cap Equity Fund
Number
of Shares Value
Common Stock -- 92.1%+
-------------------------------------------------------------------
Aerospace & Defense -- 1.2%
Applied Signal Technology, Inc........ 2,700 $ 52,083
DynCorp International, Inc. (Class A). 3,500 50,225 /(a)/
Esterline Technologies Corp........... 2,383 97,155 /(a)/
GenCorp Inc........................... 6,800 47,600 /(a)/
Teledyne Technologies Inc............. 10,500 402,780 /(a)/
649,843
Air Freight & Logistics -- 0.3%
Dynamex, Inc.......................... 2,200 39,820 /(a)/
UTi Worldwide, Inc.................... 8,650 123,868
163,688
Airlines -- 0.1%
Hawaiian Holdings, Inc................ 6,700 46,900 /(a)/
Auto Components -- 0.4%
China Automotive Systems, Inc......... 2,400 44,904 /(a)/
WABCO Holdings Inc.................... 2,300 59,317
Wonder Auto Technology, Inc........... 10,730 126,185 /(a)/
230,406
Automobiles -- 0.1%
Thor Industries Inc................... 1,900 59,660
Beverages -- 0.1%
Coca-Cola Bottling Company
Consolidated......................... 900 48,618
Biotechnology -- 1.2%
Alexion Pharmaceuticals, Inc.......... 600 29,292 /(a)/
Alkermes, Inc......................... 8,300 78,103 /(a)/
Cubist Pharmaceuticals, Inc........... 6,000 113,820 /(a)/
Emergent Biosolutions, Inc............ 3,200 43,488 /(a)/
Genomic Health Inc.................... 3,900 76,284 /(a)/
Martek Biosciences Corp............... 5,427 102,787 /(a)/
Myriad Genetics, Inc.................. 5,100 133,110 /(a)/
PDL BioPharma, Inc.................... 8,440 57,898
634,782
Building Products -- 0.2%
Armstrong World Industries, Inc....... 1,300 50,609 /(a)/
Quanex Building Products Corp......... 2,700 45,819
96,428
Capital Markets -- 1.6%
Affiliated Managers Group Inc......... 3,815 256,940 /(a)/
Epoch Holding Corp.................... 4,100 42,845
Number
of Shares Value
GFI Group Inc...................... 27,100 $ 123,847
Raymond James Financial, Inc....... 19,000 451,630
875,262
Chemicals -- 2.4%
Arch Chemicals, Inc................ 8,335 257,385
Koppers Holdings Inc............... 7,600 231,344
NewMarket Corp..................... 1,321 151,611
Sensient Technologies Corp......... 23,000 604,900
Stepan Co.......................... 1,200 77,772
1,323,012
Commercial Banks -- 1.9%
Frost Bankers, Inc................. 7,200 360,000
Fulton Financial Corp.............. 12,800 111,616
Sterling Bancorp................... 800 5,712
SVB Financial Group................ 6,800 283,492 /(a)/
Westamerica Bancorporation......... 4,500 249,165
1,009,985
Commercial Services & Supplies -- 3.0%
ABM Industries Inc................. 16,000 330,560
Copart, Inc........................ 5,400 197,802 /(a)/
Healthcare Services Group, Inc..... 12,900 276,834
Herman Miller, Inc................. 4,400 70,312
KAR Auction Services, Inc.......... 3,600 49,644 /(a)/
Ritchie Bros Auctioneers Inc....... 6,500 145,795
SYKES Enterprises, Inc............. 3,100 78,957 /(a)/
Waste Connections, Inc............. 14,100 470,094 /(a)/
1,619,998
Communications Equipment -- 1.4%
BigBand Networks, Inc.............. 8,900 30,616 /(a)/
Cogo Group, Inc.................... 8,562 63,102 /(a)/
CommScope, Inc..................... 8,500 225,505 /(a)/
Comtech Telecommunications Corp.... 1,398 49,000 /(a)/
Ixia............................... 6,300 46,872 /(a)/
Loral Space & Communications, Inc.. 2,000 63,220 /(a)/
Oplink Communications, Inc......... 3,500 57,365 /(a)/
PC-Tel Inc......................... 10,600 62,752 /(a)/
Plantronics Inc.................... 2,200 57,156
Viasat, Inc........................ 3,300 104,874 /(a)/
760,462
Computers & Peripherals -- 0.2%
Cray Inc........................... 8,400 53,928 /(a)/
Super Micro Computer, Inc.......... 4,700 52,264 /(a)/
106,192
Construction & Engineering -- 1.5%
Aecom Technology Corp.............. 3,100 85,250 /(a)/
Chicago Bridge & Iron Company N.V.. 13,100 264,882
Great Lakes Dredge & Dock Corp..... 9,500 61,560
Michael Baker Corp................. 1,165 48,231 /(a)/
See Notes to Schedules of Investments on page 11 and Notes to Financial
Statements on page 16.
6
Small-Cap Equity Fund
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
Number
of Shares Value
Quanta Services, Inc................. 4,300 $ 89,612 /(a)/
URS Corp............................. 5,725 254,877 /(a)/
804,412
Consumer Finance -- 0.4%
Ezcorp, Inc. (Class A)............... 4,100 70,561 /(a)/
First Cash Financial Services, Inc... 2,700 59,913 /(a)/
Nelnet, Inc. (Class A)............... 4,000 68,920
199,394
Containers & Packaging -- 1.4%
AEP Industries, Inc.................. 1,700 65,076 /(a)/
Aptargroup, Inc...................... 9,800 350,252
Packaging Corporation of America..... 11,400 262,314
Rock-Tenn Co. (Class A).............. 1,600 80,656
758,298
Distributors -- 0.9%
LKQ Corp............................. 25,201 493,688 /(a)/
Diversified Consumer Services -- 2.1%
American Public Education, Inc....... 4,300 147,748 /(a)/
Brink's Home Security Holdings, Inc.. 5,875 191,760 /(a)/
K12, Inc............................. 11,400 231,078 /(a)/
Lincoln Educational Services Corp.... 3,800 82,346 /(a)/
Matthews International Corp.
(Class A)........................... 10,500 372,015
Spectrum Group International Inc..... 13,148 24,587 /(a)/
Stewart Enterprises, Inc. (Class A).. 19,000 97,850
Universal Technical Institute, Inc... 700 14,140 /(a)/
1,161,524
Diversified Telecommunication Services -- 0.2%
Alaska Communications Systems
Group Inc........................... 5,400 43,092
tw telecom inc. (Class A)............ 3,700 63,418 /(a)/
106,510
Electric Utilities -- 0.7%
IDACORP, Inc......................... 12,600 402,570
Electrical Equipment -- 0.9%
Baldor Electric Co................... 6,600 185,394
Brady Corp. (Class A)................ 4,100 123,041
Powell Industries, Inc............... 1,300 40,989 /(a)/
SunPower Corp. (Class A)............. 1,800 42,624 /(a)/
Woodward Governor Co................. 4,400 113,388
505,436
Electronic Equipment, Instruments & Components -- 1.6%
Benchmark Electronics, Inc........... 6,485 122,631 /(a)/
CPI International, Inc............... 5,004 66,253 /(a)/
FARO Technologies, Inc............... 4,600 98,624 /(a)/
Methode Electronics, Inc............. 4,800 41,664
National Instruments Corp............ 8,700 256,215
Newport Corp......................... 17,075 156,919 /(a)/
Number
of Shares Value
Park Electrochemical Corp........... 2,400 $ 66,336
Trimble Navigation Ltd.............. 3,200 80,640 /(a)/
889,282
Energy Equipment & Services -- 2.6%
Cal Dive International, Inc......... 5,500 41,580 /(a)/
Dril-Quip, Inc...................... 8,900 502,672 /(a)/
Geokinetics Inc..................... 1,500 14,430 /(a)/
Gulf Island Fabrication, Inc........ 1,600 33,648
Oil States International, Inc....... 10,600 416,474 /(a)/
Pioneer Drilling Co................. 11,435 90,336 /(a)/
Superior Energy Services, Inc....... 11,500 279,335 /(a)/
1,378,475
Food & Staples Retailing -- 0.8%
Ruddick Corp........................ 10,400 267,592
Spartan Stores, Inc................. 6,700 95,743
Weis Markets, Inc................... 1,500 54,540
417,875
Food Products -- 3.4%
Darling International Inc,.......... 34,370 288,021 /(a)/
Del Monte Foods Co.................. 38,175 432,905
Flowers Foods, Inc.................. 5,400 128,304
J&J Snack Foods Corp................ 1,400 55,944
Lancaster Colony Corp............... 1,000 49,700
Lance, Inc.......................... 6,900 181,470
Ralcorp Holdings, Inc............... 800 47,768 /(a)/
Smart Balance, Inc.................. 18,400 110,400 /(a)/
Smithfield Foods, Inc............... 20,000 303,800 /(a)/
The Hain Celestial Group, Inc....... 13,000 221,130 /(a)/
1,819,442
Healthcare Equipment & Supplies -- 4.9%
Align Technology Inc................ 5,300 94,446 /(a)/
American Medical Systems
Holdings, Inc...................... 16,400 316,356 /(a)/
ev3, Inc............................ 7,600 101,384 /(a)/
Gen-Probe Inc....................... 4,300 184,470 /(a)/
Haemonetics Corp.................... 1,700 93,755 /(a)/
Immucor, Inc........................ 5,875 118,910 /(a)/
Integra LifeSciences Holdings Corp.. 6,500 239,070 /(a)/
Masimo Corp......................... 6,500 197,730 /(a)/
Medical Action Industries, Inc...... 19,400 311,564 /(a)/
Meridian Bioscience, Inc............ 7,600 163,780
Merit Medical Systems, Inc.......... 3,000 57,870 /(a)/
Natus Medical Inc................... 3,800 56,202 /(a)/
NuVasive, Inc....................... 3,285 105,054 /(a)/
SonoSite, Inc....................... 4,300 101,609 /(a)/
SurModics, Inc...................... 3,300 74,778 /(a)/
Teleflex Inc........................ 3,230 174,065
West Pharmaceutical Services, Inc... 6,500 254,800
Zoll Medical Corp................... 1,000 26,720 /(a)/
2,672,563
Healthcare Providers & Services -- 6.6%
Amedisys, Inc....................... 2,563 124,459 /(a)/
AMN Healthcare Services, Inc........ 1,000 9,060 /(a)/
See Notes to Schedules of Investments on page 11 and Notes to Financial
Statements on page 16.
7
Small-Cap Equity Fund
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
Number
of Shares Value
Bio-Reference Laboratories, Inc........ 9,700 $ 380,143 /(a)/
Continucare Corp....................... 16,700 72,979 /(a)/
Corvel Corp............................ 505 16,938 /(a)/
Emergency Medical Services Corp.
(Class A)............................. 1,300 70,395 /(a)/
Genoptix, Inc.......................... 1,400 49,742 /(a)/
Gentiva Health Services, Inc........... 2,700 72,927 /(a)/
Healthways, Inc........................ 9,800 179,732 /(a)/
HMS Holdings Corp...................... 12,300 598,887 /(a)/
inVentiv Health, Inc................... 10,500 169,785 /(a)/
IPC The Hospitalist Company, Inc....... 1,300 43,225 /(a)/
Mednax, Inc............................ 10,400 625,144 /(a)/
Molina Healthcare, Inc................. 13,100 299,597 /(a)/
National Healthcare Corp............... 800 28,888
Owens & Minor, Inc..................... 9,600 412,128
RehabCare Group, Inc................... 2,200 66,946 /(a)/
Sun Healthcare Group, Inc.............. 18,973 173,982 /(a)/
VCA Antech, Inc........................ 6,500 161,980 /(a)/
3,556,937
Healthcare Technology -- 0.8%
athenahealth, Inc...................... 2,600 117,624 /(a)/
Computer Programs & Systems, Inc....... 1,700 78,285
Eclipsys Corp.......................... 3,085 57,134 /(a)/
MedAssets, Inc......................... 8,700 184,527 /(a)/
SXC Health Solutions Corp.............. 100 5,395 /(a)/
442,965
Hotels Restaurants & Leisure -- 1.3%
Arby's Group, Inc...................... 23,200 108,808
Bally Technologies, Inc................ 1,400 57,806 /(a)/
Cracker Barrel Old Country Store, Inc.. 7,600 288,724
Denny's Corp........................... 36,880 80,767 /(a)/
Panera Bread Co. (Class A)............. 1,100 73,667 /(a)/
Shuffle Master, Inc.................... 8,800 72,512 /(a)/
682,284
Household Durables -- 1.0%
Jarden Corp............................ 16,700 516,197 /(a)/
Household Products -- 0.3%
WD-40 Co............................... 5,000 161,800
Insurance -- 3.7%
Alleghany Corp......................... 700 193,200 /(a)/
Allied World Assurance Company
Holdings Ltd.......................... 5,600 257,992
Argo Group International Holdings
Ltd................................... 6,500 189,410 /(a)/
Arthur J Gallagher & Co................ 6,500 146,315
Brown & Brown, Inc..................... 8,000 143,760
First Mercury Financial Corp........... 11,330 155,334 /(a)/
HCC Insurance Holdings, Inc............ 20,300 567,791
National Interstate Corp............... 4,600 78,016
Navigators Group, Inc.................. 5,400 254,394 /(a)/
Tower Group, Inc....................... 1,600 37,456
2,023,668
Number
of Shares Value
Internet & Catalog Retail -- 0.3%
priceline.com Inc................... 700 $ 152,950 /(a)/
Internet Software & Services -- 0.7%
Art Technology Group, Inc........... 10,800 48,708 /(a)/
comScore, Inc....................... 6,500 114,075 /(a)/
Constant Contact, Inc............... 6,900 110,400 /(a)/
NIC Inc............................. 9,800 89,572
Vocus, Inc.......................... 2,200 39,600 /(a)/
402,355
IT Services -- 2.6%
CACI International Inc. (Class A)... 1,300 63,505 /(a)/
CSG Systems International, Inc...... 1,800 34,362 /(a)/
Global Cash Access Holdings, Inc.... 29,300 219,457 /(a)/
iGate Corp.......................... 13,437 134,370
NeuStar, Inc. (Class A)............. 7,558 174,136 /(a)/
RightNow Technologies, Inc.......... 6,500 112,905 /(a)/
Sapient Corp........................ 9,300 76,911 /(a)/
SRA International Inc. (Class A).... 5,400 103,140 /(a)/
TeleTech Holdings Inc............... 3,400 68,102 /(a)/
VeriFone Holdings, Inc.............. 12,200 199,836 /(a)/
Virtusa Corp........................ 7,985 72,344 /(a)/
Wright Express Corp................. 4,300 136,998 /(a)/
1,396,066
Leisure Equipment & Products -- 0.5%
Polaris Industries, Inc............. 5,625 245,419
Life Sciences Tools & Services -- 3.1%
Accelrys, Inc....................... 11,000 63,030 /(a)/
Affymetrix Inc...................... 6,000 35,040 /(a)/
Bio-Rad Laboratories, Inc (Class A). 3,000 289,380 /(a)/
Bruker Corp......................... 26,770 322,846 /(a)/
Cambrex Corp........................ 5,400 30,132 /(a)/
Dionex Corp......................... 1,900 140,353 /(a)/
ICON PLC ADR........................ 14,600 317,258 /(a)/
Luminex Corp........................ 10,828 161,662 /(a)/
Mettler-Toledo International, Inc... 1,100 115,489 /(a)/
Techne Corp......................... 2,800 191,968
1,667,158
Machinery -- 5.8%
AGCO Corp........................... 8,400 271,656 /(a)/
Cascade Corp........................ 7,550 207,550
Chart Industries, Inc............... 3,252 53,821 /(a)/
CLARCOR, Inc........................ 9,800 317,912
Flowserve Corp...................... 1,500 141,795
Graham Corp......................... 3,300 68,310
Harsco Corp......................... 5,600 180,488
IDEX Corp........................... 13,000 404,950
Kaydon Corp......................... 5,400 193,104
Middleby Corp....................... 3,475 170,345 /(a)/
Mueller Industries, Inc............. 5,000 124,200
Nordson Corp........................ 4,075 249,309
RBC Bearings Inc.................... 5,400 131,382 /(a)/
See Notes to Schedules of Investments on page 11 and Notes to Financial
Statements on page 16.
8
Small-Cap Equity Fund
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
Number
of Shares Value
Tennant Co........................... 2,000 $ 52,380
Timken Co............................ 7,050 167,155
Trinity Industries, Inc.............. 14,500 252,880
Wabtec Corp.......................... 4,300 175,612
3,162,849
Media -- 3.4%
Arbitron, Inc........................ 14,600 341,932
Interactive Data Corp................ 24,800 627,440
John Wiley & Sons, Inc. (Class A).... 14,900 624,012
Morningstar, Inc..................... 5,500 265,870 /(a)/
1,859,254
Metals & Mining -- 1.1%
Commercial Metals Co................. 13,300 208,145
Compass Minerals International, Inc.. 5,500 369,545
577,690
Multi-Utilities -- 0.5%
OGE Energy Corp...................... 6,800 250,852
Office Electronics -- 0.3%
Zebra Technologies Corp. (Class A)... 5,500 155,980 /(a)/
Oil, Gas & Consumable Fuels -- 2.2%
Comstock Resources, Inc.............. 3,300 133,881 /(a)/
CVR Energy, Inc...................... 3,900 26,754 /(a)/
Goodrich Petroleum Corp.............. 4,300 104,705 /(a)/
James River Coal Co.................. 9,300 172,329 /(a)/
Resolute Energy Corp................. 4,300 49,536 /(a)/
SandRidge Energy, Inc................ 15,100 142,393 /(a)/
St Mary Land & Exploration Co........ 12,100 414,304
Whiting Petroleum Corp............... 2,200 157,190 /(a)/
1,201,092
Personal Products -- 2.2%
Alberto-Culver Co.................... 15,200 445,208
Bare Escentuals, Inc................. 10,800 132,084 /(a)/
Chattem, Inc......................... 6,700 625,110 /(a)/
1,202,402
Pharmaceuticals -- 0.3%
Caraco Pharmaceutical
Laboratories Ltd.................... 6,900 41,676 /(a)/
Questcor Pharmaceuticals, Inc........ 9,200 43,700 /(a)/
Viropharma Inc....................... 9,100 76,349 /(a)/
161,725
Professional Services -- 0.9%
Administaff, Inc..................... 4,300 101,437
CoStar Group, Inc.................... 4,400 183,788 /(a)/
HIS, Inc. (Class A).................. 2,200 120,582 /(a)/
Resources Connection, Inc............ 600 12,732 /(a)/
Watson Wyatt Worldwide, Inc.
(Class A)........................... 1,000 47,520
466,059
Number
of Shares Value
Real Estate Investment Trusts (REIT's) -- 2.8%
BioMed Realty Trust, Inc. (REIT).... 25,000 $ 394,500
Digital Realty Trust, Inc. (REIT)... 6,900 346,932
Healthcare Realty Trust Inc. (REIT). 15,200 326,192
Omega Healthcare
Investors, Inc. (REIT)............. 23,500 457,075
1,524,699
Real Estate Management & Development -- 0.2%
FirstService Corp................... 4,800 91,776 /(a)/
Road & Rail -- 1.9%
Genesee & Wyoming Inc. (Class A).... 15,700 512,448 /(a)/
Landstar System, Inc................ 6,500 252,005
Old Dominion Freight Line, Inc...... 8,800 270,160 /(a)/
1,034,613
Semiconductors & Semiconductor Equipment -- 2.6%
Applied Micro Circuits Corp......... 6,800 50,796 /(a)/
Cabot Microelectronics Corp......... 1,500 49,440 /(a)/
Ceva, Inc........................... 4,407 56,674 /(a)/
FEI Co.............................. 5,400 126,144 /(a)/
IXYS Corp........................... 5,466 40,558
Kopin Corp.......................... 12,500 52,250 /(a)/
Microsemi Corp...................... 17,300 307,075 /(a)/
Rudolph Technologies, Inc........... 25,600 172,032 /(a)/
Semtech Corp........................ 14,800 251,748 /(a)/
Standard Microsystems Corp.......... 2,100 43,638 /(a)/
Tessera Technologies, Inc........... 1,900 44,213 /(a)/
Varian Semiconductor Equipment
Associates, Inc.................... 4,400 157,872 /(a)/
Zoran Corp.......................... 4,800 53,040 /(a)/
1,405,480
Software -- 6.3%
ACI Worldwide, Inc.................. 5,200 89,180 /(a)/
Actuate Corp........................ 7,400 31,672 /(a)/
ArcSight, Inc....................... 1,500 38,370 /(a)/
Ariba, Inc.......................... 16,300 204,076 /(a)/
AsiaInfo Holdings, Inc.............. 3,500 106,645 /(a)/
Blackbaud, Inc...................... 18,200 430,066
Blackboard Inc...................... 5,400 245,106 /(a)/
Bottomline Technologies, Inc........ 2,200 38,654 /(a)/
Concur Technologies, Inc............ 2,600 111,150 /(a)/
Ebix, Inc........................... 2,800 136,724 /(a)/
Interactive Intelligence, Inc....... 5,600 103,264 /(a)/
Jack Henry & Associates, Inc........ 6,500 150,280
Micros Systems Inc.................. 12,800 397,184 /(a)/
NetSuite, Inc....................... 5,400 86,292 /(a)/
Parametric Technology Corp.......... 24,500 400,330 /(a)/
Pegasystems Inc..................... 3,900 132,600
QAD Inc............................. 7,100 43,381
Quest Software, Inc................. 3,200 58,880 /(a)/
S1 Corp............................. 5,100 33,252 /(a)/
Solera Holdings, Inc................ 8,600 309,686 /(a)/
Sourcefire, Inc..................... 700 18,725 /(a)/
See Notes to Schedules of Investments on page 11 and Notes to Financial
Statements on page 16.
9
Small-Cap Equity Fund
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
Number
of Shares Value
Symyx Technologies...................... 6,600 $ 36,300 /(a)/
Ultimate Software Group, Inc............ 6,500 190,905 /(a)/
3,392,722
Specialty Retail -- 3.6%
Aaron Rents, Inc. (Class B)............. 15,500 429,815
Aeropostale, Inc........................ 9,200 313,260 /(a)/
American Eagle Outfitters, Inc.......... 8,000 135,840
Jo-Ann Stores, Inc...................... 6,175 223,782 /(a)/
JOS A Bank Clothiers, Inc............... 1,400 59,066 /(a)/
Systemax Inc............................ 4,132 64,914 /(a)/
The Buckle, Inc......................... 12,100 354,288
The Men's Wearhouse, Inc................ 1,600 33,696
Tractor Supply Co....................... 4,950 262,152 /(a)/
Ulta Salon, Cosmetics & Fragrance, Inc.. 4,700 85,352 /(a)/
1,962,165
Textiles Apparel & Luxury Goods -- 1.6%
Columbia Sportswear Co.................. 5,600 218,624
Deckers Outdoor Corp.................... 2,623 266,811 /(a)/
Fossil, Inc............................. 2,400 80,544 /(a)/
Maidenform Brands, Inc.................. 3,800 63,422 /(a)/
Steven Madden Ltd....................... 1,500 61,860 /(a)/
The Timberland Co. (Class A)............ 3,400 60,962 /(a)/
True Religion Apparel, Inc.............. 1,800 33,282 /(a)/
Wolverine World Wide Inc................ 2,200 59,884
845,389
Trading Companies & Distributors -- 0.2%
Applied Industrial Technologies, Inc.... 4,100 90,487
Total Common Stock
(Cost $49,122,207)..................... 49,867,738
---------------------------------------------------------------------
Other Investments -- 0.0%*
---------------------------------------------------------------------
GEI Investment Fund
(Cost $15)............................. 12 /(c)/
Total Investments in Securities
(Cost $49,122,222)..................... 49,867,750
Number
of Shares Value
-----------------------------------------------------------------------
Short-Term Investments -- 8.2%
-----------------------------------------------------------------------
GE Money Market Fund Institutional
Class 0.01%
(Cost $4,411,506)..................... $ 4,411,506 /(b,d)/
Total Investments
(Cost $53,533,728).................... 54,279,256
Liabilities in Excess of Other Assets,
net -- (0.3)%......................... (156,794)
----------- --------
NET ASSETS -- 100.0%................... $54,122,462
=========== ========
-----------------------------------------------------------------------
Other Information
-----------------------------------------------------------------------
The GEI Small-Cap Equity had the following long futures contracts open at
December 31, 2009:
Number Current
Expiration of Notional Unrealized
Description Date Contracts Value Appreciation
---------------------------------------------------------------
Russell 2000 Mini
Index Ftrs March 2010 17 $1,060,630 $27,139
See Notes to Schedules of Investments on page 11 and Notes to Financial
Statements on page 16.
10
Notes to Schedules of Investments December 31, 2009
- ---------------------------------------------------------------------
The views expressed in this document reflect our judgment as of the publication
date and are subject to change at any time without notice. The securities cited
may not represent current or future holdings and should not be considered as a
recommendation to purchase or sell a particular security. See the prospectus
for complete descriptions of investment objectives, policies, risks and
permissible investments.
(a)Non-income producing security.
(b)Coupon amount represents effective yield.
(c)GE Asset Management Incorporated (GEAM) is the investment advisor of the
Fund and also serves as investment advisor of the GEI Investment Fund.
(d)GEAM, the investment adviser of the Fund, also serves as investment adviser
of the GE Funds-GE Money Market Fund.
* Less than 0.1%.
+ Percentages are based on net assets as of December 31, 2009.
Abbreviations:
ADR American Depository Receipt
REIT Real Estate Investment Trust
11
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
Small-Cap Equity Fund
--------------------------------------------------------- ------------------------------
CLASS 1 CLASS 4
-------------------------------------------------------- ------------------------------
12/31/09 12/31/08/(c)/ 12/31/07 12/31/06 12/31/05 12/31/09 12/31/08/(c)/
-------- ------------ -------- -------- -------- - -------- ------------
Inception date -- -- -- -- 4/28/00 -- 5/1/08
Net asset value, beginning of period. $ 7.48 $ 12.17 $ 14.39 $ 14.44 $ 13.62 $ 7.49 $ 12.06
Income/(loss) from investment
operations:
Net investment income.............. 0.04 0.09 0.06 0.05 0.02 (0.05) 0.02**
Net realized and unrealized
gains/(losses) on investments..... 2.27 (4.67) 0.31 1.87 1.28 2.32 (4.51)
- ---------------------------------------------------------------------------------------------------------------------------------
Total income/(loss) from
investment operations............... 2.31 (4.58) 0.37 1.92 1.30 2.27 (4.49)
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income.............. -- 0.05 0.06 0.04 0.03 -- 0.02
Net realized gains................. -- 0.06 2.53 1.93 0.45 -- 0.06
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions.................. 0.00 0.11 2.59 1.97 0.48 0.00 0.08
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period....... $ 9.79 $ 7.48 $ 12.17 $ 14.39 $ 14.44 $ 9.76 $ 7.49
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN/ (a)/................... 30.88% (37.59)% 2.39% 13.27% 9.53% 30.31% (37.20)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)........................ $ 54,114 $ 50,210 $104,010 $127,381 $128,142 $ 8 $ 6
Ratios to average net assets:
Net investment income............ (0.04)% 0.46% 0.31% 0.31% 0.11% (0.51)% (0.01)%*
Expenses......................... 1.52%/(b)/ 0.94%/(b)/ 0.87% 0.86% 0.86% 1.97%/(b)/ 1.39%/(b)/*
Portfolio turnover rate.......... 40% 85% 25% 52% 33% 40% 85%
Notes to Financial Highlights
- --------------------------------------------------------------------------------
(a)Total returns are historical and assume changes in share price, reinvestment
of dividends and capital gains distributions and do not include the effect
of insurance contract charges.
(b)Reflects GEAM's waiver of a portion of the Fund's management fee in an
amount equal to the management fee earned by GEAM with respect to the Fund's
investment in the GE Funds - GE Money Market Fund. Excluding waiver, the
expense ratios would be unchanged.
(c)Less than $0.01 per share of the distribution paid was from Return of
Capital.
* Annualized for periods less than one year.
**Per share values have been calculated using the average share method.
See Notes to Financial Statements.
12
Statements of Assets Small Cap
and Liabilities December 31, 2009 Equity
Fund
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at market (cost $49,122,207)......... $ 49,867,738
Investments in affiliated securities, at market (cost $15)...... 12
Short-term affiliated investments (at amortized cost)........... 4,411,506
Receivable for investments sold................................. 151,883
Income receivables.............................................. 31,191
Receivable for fund shares sold................................. 2,529
Other assets.................................................... 92,000
- --------------------------------------------------------------------------------
Total Assets.................................................. 54,556,859
- --------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased............................... 176,428
Payable for fund shares redeemed................................ 17,599
Payable to GEAM................................................. 16,479
Accrued other expenses.......................................... 212,331
Variation margin payable........................................ 11,560
- --------------------------------------------------------------------------------
Total Liabilities............................................. 434,397
- --------------------------------------------------------------------------------
NET ASSETS........................................................ $ 54,122,462
- --------------------------------------------------------------------------------
NET ASSETS CONSIST OF :
Capital paid in................................................. 65,547,275
Undistributed (distribution in excess of) net investment income. 5,498
Accumulated net realized gain (loss)............................ (12,202,978)
Net unrealized appreciation/ (depreciation) on:
Investments................................................... 745,528
Futures....................................................... 27,139
- --------------------------------------------------------------------------------
NET ASSETS........................................................ $ 54,122,462
- --------------------------------------------------------------------------------
Class 1:
NET ASSETS........................................................ 54,114,276
Shares outstanding ($0.01 par value; unlimited shares authorized). 5,525,650
Net asset value per share......................................... 9.79
Class 4:
NET ASSETS........................................................ 8,186
Shares outstanding ($0.01 par value; unlimited shares authorized). 838
Net asset value per share......................................... 9.76
See Notes to Financial Statements.
13
Statements of Operations Small-Cap
For the year ending December 31, 2009 Equity
Fund
- -------------------------------------------------------------------------------------
INVESTMENT INCOME
Income:
Dividend............................................................ $ 581,283
Interest............................................................ 112,542
Interest from affliated investments................................. 8,308
Less: Foreign taxes withheld........................................ (417)
- -------------------------------------------------------------------------------------
Total Income.......................................................... 701,716
- -------------------------------------------------------------------------------------
Expenses:
Advisory and administrative fees.................................... 466,514
Distributors Fees (Notes 4)
Service Class..................................................... 31
Transfer agent...................................................... 17,899
Directors' fees..................................................... 1,256
Custody and accounting expenses..................................... 167,903
Professional fees................................................... 62,402
Registration expenses............................................... 3,897
Other expenses...................................................... 34,597
- -------------------------------------------------------------------------------------
Total expenses before waiver and reimbursement........................ 754,499
- -------------------------------------------------------------------------------------
Add: Expenses reimbursed by the adviser............................. (6,703)
- -------------------------------------------------------------------------------------
Net expenses........................................................ 747,796
- -------------------------------------------------------------------------------------
Net investment (loss)................................................. (46,080)
- -------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain (loss) on:
Investments....................................................... (7,315,190)
Futures........................................................... 17,326
Written options................................................... 122,362
Increase (decrease) in unrealized appreciation/(depreciation) on:
Investments....................................................... 20,725,260
Futures........................................................... 27,139
Written options................................................... (37,656)
- -------------------------------------------------------------------------------------
Net realized and unrealized gain on investments..................... 13,539,241
- -------------------------------------------------------------------------------------
Net increase in net assets resulting from operations.................. $13,493,161
- -------------------------------------------------------------------------------------
See Notes to Financial Statements.
14
Statements of Small Cap
Changes in Net Assets Equity
Fund
- -----------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended
December 31, December 31,
2009 2008
- -----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investments income (loss)......................................................... $ (46,080) $ 331,703
Net realized gain (loss) on investments, futures and written options.................. (7,175,502) (4,974,150)
Net increase (decrease) in unrealized appreciation / (depreciation) on investments,
futures and written options......................................................... 20,714,743 (29,522,691)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations............................................... 13,493,161 (34,165,138)
- -----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from :
Net investment income
Class 1............................................................................. -- (359,420)
Class 4............................................................................. -- (20)
Net realized gains
Class 1............................................................................. -- (379,020)
Class 4............................................................................. -- (47)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions..................................................................... -- (738,507)
- -----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions..................... 13,493,161 (34,903,645)
- -----------------------------------------------------------------------------------------------------------------------
Share transactions :
Proceeds from sale of shares
Class 1............................................................................. 2,405,061 11,808,695
Class 4............................................................................. -- 10,000
Value of distributions reinvested
Class 1............................................................................. -- 738,440
Class 4............................................................................. -- 67
Cost of shares redeemed
Class 1............................................................................. (11,991,743) (31,447,731)
Class 4............................................................................. -- --
- -----------------------------------------------------------------------------------------------------------------------
Net (decrease) from share transactions................................................ (9,586,682) (18,890,529)
- -----------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets................................................. 3,906,479 (53,794,174)
NET ASSETS
Beginning of period..................................................................... 50,215,983 104,010,157
- -----------------------------------------------------------------------------------------------------------------------
End of period........................................................................... $ 54,122,462 $ 50,215,983
- -----------------------------------------------------------------------------------------------------------------------
Undistributed (distribution in excess of)
net investment income, end of period.................................................... $ 5,498 $ 15,574
- -----------------------------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES
Class 1
Shares sold............................................................................... 309,191 1,338,034
Issued for distributions reinvested....................................................... -- 101,854
Shares redeemed........................................................................... (1,499,252) (2,946,942)
- -----------------------------------------------------------------------------------------------------------------------
Net (decrease) in fund shares............................................................. (1,190,061) (1,507,054)
- -----------------------------------------------------------------------------------------------------------------------
Class 4
Shares sold............................................................................... -- 829
Issued for distributions reinvested....................................................... -- 9
Shares redeemed........................................................................... -- --
- -----------------------------------------------------------------------------------------------------------------------
Net increase in fund shares............................................................... -- 838
- -----------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
15
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
1. Organization of the Company
GE Investments Funds, Inc. (the "Company") was incorporated under the laws of
the Commonwealth of Virginia on May 14, 1984 and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Company is composed of fourteen investment
portfolios (collectively the "Funds"), although only the following eleven are
currently being offered: U.S. Equity Fund, S&P 500 Index Fund, Premier Growth
Equity Fund, Core Value Equity Fund, Mid-Cap Equity Fund, Small-Cap Equity Fund
(the "Fund"), International Equity Fund, Total Return Fund, Income Fund, Money
Market Fund and Real Estate Securities Fund.
Shares of the Funds of the Company are offered only to insurance company
separate accounts that fund certain variable life insurance contracts and
variable annuity contracts. These insurance companies may include insurance
companies affiliated with GE Asset Management Incorporated ("GEAM"), the
investment adviser and administrator of each of the Funds.
The Company offers two share classes (Class 1 and Class 4) of the Fund as
investment options for variable life insurance and variable annuity contracts.
Class 4 shares were first offered on May 1, 2008, and Fund shares outstanding
prior to May 1, 2008 were designated as Class 1 shares. Each share class has
different fees and expenses, and as a result, each share class will have
different share price and performance. Not all variable contracts offer both
share classes of the Fund.
2. Summary of Significant Accounting Policies
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results may differ from
those estimates.
Accounting Changes
The Financial Accounting Standards Board (FASB) issued FASB Accounting
Standards Codification (ASC) effective for financial statements issued for
interim and annual periods ending after September 15, 2009. The ASC is an
aggregation of previously issued authoritative U.S. generally accepted
accounting principles (GAAP) in one comprehensive set of guidance organized by
subject area. In accordance with the ASC, references to previously issued
accounting standards have been replaced by ASC references. Subsequent revisions
to GAAP will be incorporated into the ASC through Accounting Standards Updates
(ASU).
Subsequent Events
Subsequent events after the balance sheet date through the date that the
financial statements were issued have been evaluated in the preparation of the
Financial Statement.
The following summarizes the significant accounting policies of the Fund:
Security Valuation and Transactions
The Fund's portfolio securities are valued generally on the basis of market
quotations. Equity securities generally are valued at the last reported sales
price on the primary market in which they are traded. Portfolio securities
listed on NASDAQ are valued using the NASDAQ Official Closing Price, which may
not necessarily represent the last sale price. If no sales occurred on the
exchange or NASDAQ that day, the portfolio security generally is valued using
the last reported bid price.
Debt securities (other than short-term securities described below) generally
are valued at an evaluated bid as reported by an independent pricing service.
Values obtained from pricing services are based on recent trading activity and
other relevant information which may include market interest rate curves,
referenced credit spreads and estimated prepayment rates where applicable. In
the absence of a reliable price from such a pricing service, debt securities
may be valued based on dealer supplied valuations or quotations. The Fund's
written or purchased options are valued at the last sales price, or if no sales
occurred that day, at the last reported bid price. Short-term investments of
sufficient credit quality with remaining maturities of sixty days or less at
the time of purchase are valued on the basis of amortized cost, which
approximates market value.
All assets and liabilities of the Fund that are initially expressed in foreign
currency values will be converted into U.S. dollars at the WM/Reuters exchange
rate computed at 11:00 a.m., Eastern time.
16
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
If prices are not readily available for a portfolio security, or if it is
believed that a price for a portfolio security does not represent its fair
value, the security may be valued using procedures approved by the Fund's Board
of Directors that are designed to establish its "fair" value. Those procedures
require that the fair value of a security be established by the fair valuation
committee. The fair valuation committee follows different protocols for
different types of investments and circumstances. The fair value procedures may
be used to value any investment by the Fund in the appropriate circumstances.
Examples of the types of securities that may be fair valued include: thinly
traded or illiquid investments, high-yield securities or foreign securities.
Foreign securities may be valued with the assistance of an independent fair
value pricing service in circumstances where it is believed that they have been
or would be materially affected by events occurring after the close of the
portfolio security's primary market and before the close of regular trading on
the NYSE. This independent fair value pricing service uses a computerized
system to appraise affected securities and portfolios taking into consideration
various factors and the fair value of such securities may be something other
than the last available quotation or other market price.
GEAM may also separately monitor portfolio securities and, consistent with the
Fund's fair value procedures, apply a different value to a portfolio security
than would be applied had it been priced using market quotations or by an
independent fair value pricing service.
Determining the fair value of securities involves the application of both
subjective and objective considerations. Security values may differ depending
on the methodology used to determine their values, and may differ from the last
quoted sale or closing price. No assurance can be given that use of these fair
value procedures will always better represent the price at which the Fund could
sell the affected portfolio security.
Security transactions are accounted for as of the trade date. Realized gains
and losses on investments sold are recorded on the basis of identified cost for
both financial statement and federal tax purposes.
Fair Value Measurements
The Fund adopted ASC 820, Fair Valuation Measurements and Disclosures effective
January 1, 2008. This guidance establishes a new framework for measuring fair
value and expands related disclosures. Broadly, the framework requires fair
value to be determined based on the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction
between market participants. It also establishes a three-level valuation
hierarchy based upon observable and non-observable inputs.
For financial assets and liabilities, fair value is the price the Fund would
receive to sell an asset or pay to transfer a liability in an orderly
transaction with a market participant at the measurement date. In the absence
of active markets for the identical assets or liabilities, such measurements
involve developing assumptions based on market observable data and, in the
absence of such data, internal information that is consistent with what market
participants would use in a hypothetical transaction that occurs at the
measurement date.
Observable inputs reflect market data obtained from independent sources, while
unobservable inputs reflect our market assumptions. Preference is given to
observable inputs. These two types of inputs create the following fair value
hierarchy:
Level 1 -- Quoted prices for identical investments in active markets.
Level 2 -- Quoted prices for similar investments in active markets; quoted
prices for identical or similar investments in markets that are not active;
and model-derived valuations whose inputs are observable or whose significant
value drivers are observable.
Level 3 -- Significant inputs to the valuation model are unobservable.
Policies and procedures are maintained to value investments using the best and
most relevant data available. In addition, GEAM performs periodic reviews of
the methodologies used by independent pricing services including price
validation of individual securities.
The following section describes the valuation methodologies the Fund uses to
measure different financial investments at fair value.
When available, the Fund uses quoted market prices to determine the fair value
of investment securities, and they are included in Level 1. Level 1 securities
primarily include publicly-traded equity securities.
When quoted market prices are unobservable, pricing information is obtained
from an independent pricing
17
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
vendor. The pricing vendor uses various pricing models for each asset class
that are consistent with what other market participants would use. The inputs
and assumptions to the model of the pricing vendor are derived from market
observable sources including: benchmark yields, reported trades, broker/dealer
quotes, issuer spreads, benchmark securities, bids, offers, and other
market-related data. Since many fixed income securities do not trade on a daily
basis, the methodology of the pricing vendor uses available information as
applicable such as benchmark curves, benchmarking of like securities, sector
groupings, and matrix pricing. The pricing vendor considers all available
market observable inputs in determining the evaluation for a security. Thus,
certain securities may not be priced using quoted prices, but rather determined
from market observable information. These investments are included in Level 2
and primarily comprise our portfolio of corporate fixed income, and government,
mortgage and asset-backed securities. In infrequent circumstances, pricing
vendors may provide the Fund with valuations that are based on significant
unobservable inputs, and in those circumstances the investment securities are
included in Level 3.
The Fund uses non-binding broker quotes as the primary basis for valuation when
there is limited, or no, relevant market activity for a specific investment or
for other investments that share similar characteristics. The Fund has not
adjusted the prices obtained. Investment securities priced using non-binding
broker quotes are included in Level 3. As is the case with the primary pricing
vendor, third-party brokers do not provide access to their proprietary
valuation models, inputs and assumptions. Accordingly, GEAM conducts internal
reviews of pricing for all such investment securities periodically to ensure
reasonableness of valuations used in our financial statements. These reviews
are designed to identify prices that appear stale, those that have changed
significantly from prior valuations, and other anomalies that may indicate that
a price may not be accurate. Based on the information available, GEAM believes
that the fair values provided by the brokers are representative of prices that
would be received to sell the assets at the measurement date (exit prices).
Other financial investments are derivative investments that are not reflected
in Total Investments, such as futures, forwards, swaps, and written options
contracts, which are valued based on the unrealized appreciation/depreciation
of the instrument.
The Fund uses closing prices for derivatives included in Level 1, which are
traded either on exchanges or liquid over-the counter markets. Derivative
assets and liabilities included in Level 2 primarily represent interest rate
swaps, cross-currency swaps and foreign currency and commodity forward and
option contracts. Derivative assets and liabilities included in Level 3
primarily represent interest rate products that contain embedded optionality or
prepayment features.
In January 2010, FASB issued ASU 2010-06, Improving Disclosures about Fair
Value Measurements. ASU 2010-06 will require reporting entities to make new
disclosures about the amounts and reasons for significant transfers in and out
of Level 1 and Level 2 fair value measurements and inputs and valuation
techniques used to measure fair value for both recurring and nonrecurring fair
value measurements that fall in either Level 2 or Level 3, and information on
purchases, sales, issuances, and settlements in the roll forward of activity in
Level 3 fair value measures. The new disclosures are effective for interim and
annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements. Those disclosures are
effect for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. GEAM does not believe the adoption of ASU
2010-06 will materially impact the financial statement amounts.
The following tables present the funds' investments measured at fair value on a
recurring basis at December 31, 2009:
Level 1 Level 2 Level 3 Total
---------------------------------------------------------------------
Investments in Securities+ $54,279,244 $12 $-- $54,279,256
Other Financial Instruments+ 27,139 -- -- 27,139
+ See Statement of Investments for Industry Classification.
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities. For example, money
market securities are valued using amortized cost, in accordance with the
Investment Company Act of 1940. Generally, amortized cost reflects the current
fair value of a security, but since
18
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
the value is not obtained from a quoted price in an active market, such
securities are reflected as Level 2. Fair value determinations are required for
securities whose value is affected by a significant event that will materially
affect the value of a domestic or foreign security and which occurs subsequent
to the time of the close of the principal market on which such domestic or
foreign security trades but prior to the calculation of the Fund's NAV.
Repurchase Agreements The Fund may engage in repurchase agreement transactions
with respect to instruments that are consistent with the Funds's investment
objectives or policies. The Fund's custodian or a third party custodian takes
possession of the collateral pledged for investments in repurchase agreements
on behalf of the Fund. The Fund values the underlying collateral daily on a
mark-to-market basis to determine that the value, including accrued interest,
is at least equal to 102% of the repurchase price. In the event the seller
defaults and the value of the security declines, or if the seller enters an
insolvency proceeding, realization of the collateral by the Fund may be delayed
or limited.
Security Lending The Fund may loan securities to brokers, dealers, and
financial institutions determined by GEAM to be creditworthy, subject to
certain limitations. The Fund continues to receive the interest and dividends
on the loaned securities during the term of the loan. The loans of securities
are secured by collateral in the form of cash or other liquid assets, which are
segregated and maintained with the custodian in an amount at least equal to
102% of the current market value of the loaned securities. During the term of
the loan, the Fund will record any gain or loss in the market value of its
loaned securities and of securities in which cash collateral is invested. The
Fund will also earn interest, net of any rebate, from securities in which cash
collateral is invested. In the event the counterparty (borrower) does not meet
its contracted obligation to return the securities, the Fund may be exposed to
the risk of loss of reacquiring the loaned securities at prevailing market
prices using the proceeds of the sale of the collateral.
Foreign Currency Accounting records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the prevailing rates of exchange
on a daily basis (on days the New York Stock Exchange is open). Purchases and
sales of securities, income receipts and expense payments denominated in
foreign currencies are translated into U.S. dollars at the prevailing exchange
rate on the respective dates of such transactions.
The Fund does not isolate the portion of the results of operations resulting
from changes in foreign exchange rates of foreign denominated securities from
the fluctuations arising from changes in the market prices of those securities
during the period. Such fluctuations are included in the net realized or
unrealized gain or loss from investments. Net realized gains or losses on
foreign currency transactions represent net gains or losses on sales and
maturities of foreign currency contracts, disposition of foreign currencies,
the difference between the amount of net investment income and withholding
taxes accrued and the U.S. dollar amount actually received or paid, and gains
or losses between the trade and settlement date on purchases and sales of
securities. Net unrealized foreign exchange gains and losses arising from
changes in the value of other assets and liabilities as a result of changes in
foreign exchange rates are included as increases or decreases in unrealized
appreciation/depreciation on foreign currency related transactions.
Investments in Foreign Markets Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
Income Taxes The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for
federal income tax purposes.
The Fund is subject to ASC 740, Income Taxes. ASC 740 provides guidance for
financial accounting and reporting for the effects of income taxes that result
from an entity's activities during the year. ASC 740 also provides guidance
regarding how certain uncertain tax positions should be
19
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
recognized, measured, presented and disclosed in the financial statements. ASC
740 requires evaluation of tax positions taken or expected to be taken in the
course of preparing the Funds' tax returns to determine whether the tax
positions are "more likely than not" of being sustained by the applicable tax
authority. There are no adjustments to the Funds' net assets required under ASC
740. The Funds' 2006, 2007, 2008 and 2009 fiscal years tax returns are still
open to examination by the Federal and applicable state tax authorities."
At December 31, 2009, information on the tax cost of investments is as follows:
Net Tax
Appreciation/ Undistributed
Net Tax (Depreciation) on Undistributed Long-Term
Cost of Gross Tax Gross Tax Appreciation/ Derivatives, Income/ Gains Post October
Investments for Unrealized Unrealized (Depreciation) on Currency and (Accumulated (Accumulated Losses (see
Tax Purposes Appreciation Depreciation Investments other Net Assets Ordinary Loss) Capital Loss) Detail Below)
- --------------------------------------------------------------------------------------------------------------------------------
$53,972,778 $5,990,617 $(5,684,139) $306,478 $-- $5,498 $(11,552,432) $(184,357)
As of December 31, 2009, the Fund has capital loss carryovers as follows:
Amount Expires
---------------------------------------------------
$430,701 12/31/2016
$11,121,731 12/31/2017
Capital loss carryovers are available to offset future realized capital gain to
the extent provided in the Internal Revenue Code and regulations thereunder. To
the extent that these carryover losses are used to offset future capital gains,
it is probable that gains so offset will not be distributed to shareholders
because they would be taxable as ordinary income.
Any net capital and currency losses incurred after October 31, within the
Fund's tax year, are deemed to arise on the first day of the Fund's next tax
year if the Fund so elects to defer such losses.
The Fund elected to defer incurred losses after October 31, 2009 as follows.
Capital Currency
---------------------------------------------------
$184,357 $--
The tax composition of distributions paid during the years ended December 31,
2009 and December 31, 2008 were as follows:
Ordinary Income Long-Term Capital Gains Return of Capital Total
- ---------------------------------------------------------------------------------------------------------------------------------
2009 $-- $-- $-- $--
2008 348,614 379,085 10,808 738,507
Distributions to Shareholders The Fund declares and pays dividends from net
investment income annually. The Fund declares and pays net realized capital
gains in excess of capital loss carryforwards distributions annually. The
character of income and gains to be distributed is determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences include (but are not limited to) distributions
from Real Estate Investment Trusts (REITS) and losses deferred due to wash sale
transactions. Reclassifications due to permanent book/tax differences are made
to the Fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. These reclassifications have no impact on net investment income,
realized gains or losses, or the net asset value of the Fund. The calculation
of net investment income per share in the Financial Highlights table excludes
these adjustments.
The reclassifications for the year ended December 31, 2008 were as follows:
Undistributed
(Distribution in Excess Accumulated Net Realized
of) Net Investment Income Gain Paid In Capital
-----------------------------------------------------------------------------
$36,004 $35 $(36,039)
Investment Income Corporate actions (including cash dividends) are recorded on
the ex-dividend date, net of applicable withholding taxes, except for certain
foreign corporate actions, which are recorded as soon after ex-dividend date as
such information becomes available. Interest income is recorded on the accrual
basis. All discounts and premiums on bonds are accreted and amortized,
respectively, to call or maturity date, whichever is shorter, using the
effective yield method.
20
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
Expenses Fund specific expenses are allocated to the Fund that incurs such
expense and pro rata across share classes. Expenses, other than those incurred
by a specific Fund, are allocated pro rata among Funds and share classes. Such
expenses may include custodial fees, legal and accounting fees, printing costs
and registration fees. All expenses of the Fund are paid by GEAM and reimbursed
by the Fund. Certain class specific expenses (such as transfer agency fees or
distribution fees) are allocated to the class that incurs such expense.
Derivative Instruments The Fund is subject to equity price risk and foreign
currency exchange rate risk in the normal course of pursuing their investment
objectives. The Fund entered into derivative transactions for the purpose of
hedging against the effects of changes in the value of portfolio securities due
to anticipated changes in market conditions and to gain market exposure for
residual and accumulating cash positions. A futures contract represents a
commitment for the future purchase or sale of an asset at a specified price on
a specified date. Upon entering into such contracts, the Fund is required to
deposit with the broker, either in cash or securities, an initial margin in an
amount equal to a certain percentage of the contract amount. Subsequent
payments (variation margin) are made or received by the Fund each day,
depending on the daily fluctuations in the value of the contract, and are
recorded for financial statement purposes as unrealized gains or losses by the
Fund. Upon entering into such contracts, the Fund bears the risk of interest or
exchange rates or securities prices moving unexpectedly, in which case, the
Fund may not achieve the anticipated benefits of the futures contracts and may
realize a loss. With futures contracts, there is minimal counterparty credit
risk to the Fund since futures contracts are exchange traded and the exchange's
clearinghouse, as counterparty to all traded futures, guarantees the futures
against default.
Shown below are the derivative contracts entered into by the Fund, summarized
by primary risk exposure.
Asset Derivatives December 31, 2009 Liability Derivatives December 31, 2009
Derivatives not ----------------------------------------------- -----------------------------------------
accounted for as Notional Location in Notional
hedging instruments Location in Value/No. of the Statements Value/No. of
under FASB the Statements of Assets Contracts Fair of Assets Contracts Fair
ASC 815 and Liabilities Long/(Short) Value and Liabilities Long/(Short) Value
- - ------------------------------------------------------------------------------------------
Equity Contracts Receivables, Net 1,060,630/17 27,139* -- --
Assets Unrealized
Appreciation/Depreciation
on Futures
- ---------------------------------------------------------------------------------------------------------------
*Includes cumulative appreciation/depreciation of futures contracts as reported
in the Schedule of Investments and Equity section of the Statement of Assets
and Liabilities. Only the current day's variation margin is reported within
the receivables and/or payables Statement of Assets and Liabilities.
Shown below are the effects of derivative instruments on the Fund's Statements
of Operations, summarized by primary risk exposure.
Derivatives not
accounted Total Number of Change in Unrealized
for as hedging Location in the Futures/Options Realized Gain or Appreciation/(Depreciation)
instruments Statements of Contracts (Loss) on Derivatives on Derivatives
under FASB ASC 815 Operations Purchased/(Sold) Recognized in Income Recognized in Income
- ---------------------------------------------------------------------------------------------------------
Equity Contracts Net realized gain/ 44/(27) 17,326 27,139
(loss) on
futures, Increase/ *
(decrease)
in unrealized
appreciation/
(depreciation) on
futures
- ---------------------------------------------------------------------------------------------------------
*Volume for the Fund's written options are disclosed in note 6 of this section.
21
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
3. Line of Credit
The Company shares a revolving credit facility of up to $150 million with a
number of its affiliates. The credit facility is with its custodian bank, State
Street Bank and Trust Company. The revolving credit facility requires the
payment of a commitment fee equal to 0.15% per annum on the daily unused
portion of the credit facility, payable quarterly. The portion borne by the
Funds generally is borne proportionally based upon net assets. In addition, the
Company has a $100 million uncommitted, unsecured line of credit with State
Street. Generally, borrowings under the credit facilities would accrue interest
at the Federal Funds Rate plus 50 basis points and would be borne by the
borrowing Fund. The maximum amount allowed to be borrowed by any one Fund is
the lesser of (i) its prospectus limitation or (ii) 20% of its net assets. The
credit facilities were not utilized by the Fund during the fiscal year ended
December 31, 2009.
4. Amounts Paid to Affiliates
GEAM, a registered investment adviser, was retained by the Company's Board of
Directors effective March 16, 2000 to act as investment adviser and
administrator of the Fund. GEAM's compensation for investment advisory and
administrative services is paid monthly based on the average daily net assets
of the Fund at an annualized rate of 0.95%.
GEAM Waives a portion of the Fund's Management Fee in the amount equal to the
Management Fee earned by GEAM with respect to the Fund's Investment in the GE
Funds -- GE Money Market Fund.
Distribution and Service (12b-1) Fees The Company has adopted a Distribution
and Service (12b-1) Plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act
with respect to Class 4 shares of the Fund. Under the Plan, the Fund may
compensate GE Investment Distributors, Inc. ("GEID"), a wholly-owned subsidiary
of GEAM and the Fund's principal distributor, for certain sales services
provided by GEID or other broker dealers and investor services provided by GEID
or other service providers relating to the Fund's Class 4 shares, including
services to owners or prospective owners of variable contracts issued by
insurance companies that offer such share class as an investment option. The
amount of compensation paid under the Plan by the Fund's Class 4 shares may not
exceed 0.45% of the average daily net assets of the Fund attributable to such
share class. The Plan continues in effect from year to year for so long as such
continuance is approved annually by the Board of Directors, including by those
directors who are not interested persons of the Company and who have no direct
or indirect financial interest in the operation of the Plan or in any agreement
related to it.
GENPACT performs certain accounting and certain administration services not
provided by GEAM. For the period ending December 31, 2009, $823 was charged to
the Fund.
Directors' Compensation The Fund pays no compensation to its directors who are
officers or employees of GEAM or its affiliates. Directors who are not such
officers or employees also serve in a similar capacity for other funds advised
by GEAM. Compensation paid to unaffiliated directors are reflected on the
Statement of Operations. These fees are allocated pro rata across all of the
mutual fund platforms and share classes served by the directors, including the
Fund, and are based upon the relative net assets of each fund within such
platforms. (For additional information about directors compensation please
refer to the Statement of Additional Information.)
5. Sub-advisory Fees
Pursuant to investment sub-advisory agreements with GEAM, the assets of the
Small-Cap Equity Fund are allocated to and managed by each of the following
sub-advisers: (i) Palisade Capital Management, L.L.C.; (ii) Champlain
Investment Partners, LLC; (iii) GlobeFlex Capital, LP; and (iv) SouthernSun
Asset Management, Inc. GEAM is responsible for allocating the Fund's assets
among the sub-advisers in its discretion (Allocated Assets), and for managing
the Fund's cash position, while each sub-adviser is responsible for the
day-to-day management of their portion of the Allocated Assets, under the
general supervision and oversight of GEAM and the Board.
For their services, GEAM pays each sub-adviser an investment sub-advisory fees,
which are calculated as a percentage of the average daily net assets of the
respective Allocated Assets that they manage.
6. Investment Transactions
Purchases and Sales of Securities The cost of purchases and the proceeds from
sales of investments, other than short-term securities and options, for the
period ended December 31, 2009 were as follows:
U.S. Government Securities
-----------------------------------------------------
Purchases Sales
-----------------------------------------------------
$-- $--
Other Securities
-----------------------------------------------------
Purchases Sales
-----------------------------------------------------
$18,707,519 $30,259,900
22
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
Security Lending At December 31, 2009, and for the year then ended the Fund did
not participate in securities lending.
Options During the period ended December 31, 2009, there were no options
contracts written. For the year ended December 31, 2009, the following
summarizes written options activity:
GEI Small-Cap
Equity Fund
--------------
Number of
Contracts Premium
------------------------------------------
Balance as of
December 31, 2008 117 38,259
Written
Closed and expired (117) (38,259)
------------------------------------------
Balance as of
December 31, 2009 -- --
------------------------------------------
23
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors GE Investments Funds, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the Small-Cap Equity Fund, a series
of GE Investments Funds, Inc., as of December 31, 2009, and the related
statement of operations for the year then ended, statements of changes in net
assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years or periods in the five-year period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of December 31, 2009 by
correspondence with the custodian and brokers, or by other appropriate auditing
procedures where replies from brokers were not received. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Small-Cap Equity Fund as of December 31, 2009, the results of its operations,
changes in its net assets and financial highlights for each of the years or
periods described above, in conformity with U.S. generally accepted accounting
principles.
/s/ KPMG LLP
Boston, Massachusetts
February 25, 2010
24
Advisory and Administrative Agreement Approvals
and Renewals (unaudited)
- ---------------------------------------------------------------
The Board of Directors of the GE Investments Funds, Inc. (the "Board"),
including the independent Board members, considered and all those that were
present unanimously approved the continuance of the Fund's Investment Advisory
and Administration Agreement with GE Asset Management Incorporated ("GEAM") and
the Investment Sub-Advisory Agreements with each of the Fund's sub-advisers,
Palisade Capital Management, L.L.C. ("Palisade"), Champlain Investment
Partners, LLC ("Champlain"), GlobeFlex Partners, LP ("GlobeFlex") and
SouthernSun Asset Management, Inc. ("SouthernSun"), at meetings held on
December 4 and December 11, 2009.
In considering whether to approve the Fund's investment advisory and
sub-advisory agreements, the Board members considered and discussed a
substantial amount of information and analysis provided, at the Board's
request, by GEAM and each of the sub-advisers. The Board members also
considered detailed information regarding performance and expenses of other
investment companies, including those with similar investment objectives and
sizes, which was prepared by independent third party providers, Lipper
Analytical Services Inc. ("Lipper") and Morningstar, Inc. ("Morningstar"). The
Board members reviewed the fees charged by GEAM for other mutual funds that
employ a similar investment strategy as the Fund. The Board had the opportunity
to ask questions and request additional information in connection with its
considerations.
Before approving the Fund's advisory and sub-advisory agreements, as
applicable, the Board members reviewed the information provided with management
of GEAM and with independent legal counsel. The Board members also reviewed a
memorandum prepared by independent legal counsel discussing the legal standards
for the consideration of the proposed continuances. The independent Board
members discussed the proposed continuances in detail during a private session
with their independent legal counsel at which no representatives of GEAM or any
of the sub-advisers were present. The independent Board members and their
independent legal counsel requested, and received and considered, additional
information from GEAM following these sessions.
In advance of the meetings, and in response to their request, the Board members
received from GEAM written responses to their inquiries, which included
substantial exhibits and other materials related to GEAM's business and the
services it provides to the Fund. Also in advance of the meetings, the Board
members received from each of the sub-advisers a written response to a letter
of inquiry prepared by GEAM at the Board's request, which included substantial
exhibits and other materials related to the business of, and services provided
by, each of the sub-advisers. The Board members took into account their
multi-year experience as Board members and particularly their consideration of
these types of agreements in recent years. The information was presented in a
manner to facilitate comparison to prior periods and to reflect certain
enhancements. To focus their review, the Board members asked GEAM management
and each of the sub-advisers, in their oral presentations, to highlight
material differences from the information presented in recent years.
During the meetings, the Board members had an opportunity to discuss this
information with GEAM managers, including senior executives, representatives
from the legal, compliance and finance departments, and investment personnel.
The Board members also had the opportunity to hear presentations by
representatives of each of the sub-advisers during the past year (GlobeFlex and
SouthernSun at the September 9, 2009 Board meeting, Champlain at the March 11,
2009 Board meeting and Palisade at the June 10, 2009 Board meeting). The Board
members posed questions to these representatives and engaged in substantive
discussions with them concerning each of their investment processes.
In reaching their determinations relating to continuance of the Fund's
investment advisory and sub-advisory agreements, the Board members considered
all factors that they deemed relevant, including the factors discussed below.
In their deliberations, the Board members did not identify any particular
information that was all-important or controlling, and each Board member may
have attributed different weights to the various factors. In particular, the
Board members focused on the following:
The Nature, Extent And Quality Of Services Provided.
The Board members reviewed the services provided by GEAM and each of the
sub-advisers, in particular taking into account their extensive past
experiences with GEAM and Palisade. In connection with their consideration of
GEAM's services, the Board members focused on the favorable attributes of GEAM,
including (i) an investment philosophy oriented toward long-term performance;
(ii) effective processes used for overseeing multiple sub-advisers;
25
Advisory and Administrative Agreement Approvals
and Renewals (unaudited)
- ---------------------------------------------------------------
(iii) effective processes used for providing Fund administration, including
controllership and compliance functions and oversight of the performance of
other companies that provide services to the Fund; (iv) highly skilled
professionals including analysts, research professionals, traders and portfolio
managers with a depth of experience involving the types of Funds they oversee;
(v) access to significant technological resources from which the Fund may
benefit; and (vi) a favorable history and reputation. The Board members
discussed with senior officers of GEAM the personnel changes made, and proposed
to be made, by GEAM. The Board members noted that the Fund represents only a
small portion of the assets managed by GEAM, but benefits from a full array of
services and resources provided by GEAM.
In connection with their consideration of the services provided by each of the
sub-advisers, the Board members focused on the favorable attributes of the
sub-advisers relating to their respective investment philosophies and
disciplines, experienced investment and trading personnel, systems and other
resources, including research capabilities, and satisfactory histories and
reputations.
In light of the foregoing, the Board, including the independent Board members,
concluded that the services provided by GEAM and each of the sub-advisers
continue to be satisfactory.
Investment Performance Of The Fund And Sub-Advisers
The Board members considered the investment performance of the Fund for various
periods. The Board members reviewed detailed comparisons of the performance of
the Fund with the relevant securities indices and peer groupings of mutual
funds prepared by Lipper and Morningstar with respect to various periods. The
Board members also engaged in detailed discussions with GEAM management and
representatives of each of the sub-advisers at meetings held throughout the
year, about each of their investment processes and performance results. These
discussions focused on the Fund's investment objective, the number and
experience of portfolio management and supporting research personnel, the
investment style and approach employed, the likely market cycles for the
investment style and relative underperformance in certain periods. The Board
also considered the multi-manager structure and how each sub-adviser's approach
to small-cap investing fits within the Fund's overall strategy. The Board
members discussed GEAM's investment approach with respect to the Fund, and that
the performance of the Fund is consistent with GEAM's articulated long-term
approach and overall investment philosophy.
The Board, including the independent Board members, concluded that the Fund's
performance was acceptable overall taking into consideration the factors
discussed above.
Cost Of The Services Provided And Profits Realized From The Relationships With
The Fund
The Board members considered the fees paid to GEAM by the Fund, as well as
those paid to each of the sub-advisers by GEAM, and the cost of the services
provided to the Fund by GEAM and each of the sub-advisers. The Board members
reviewed the information they had requested from GEAM and each of the
sub-advisers concerning their profitability.
The Board members considered the profit margin information for GEAM's
investment company business as a whole, as well as GEAM's profitability data
for the Fund. The Board members reviewed GEAM's assumptions and the methods of
cost allocation used by GEAM in preparing Fund-specific profitability data. The
Board members discussed with GEAM the basis for its belief that the methods of
allocation used were reasonable for each area of its business. The Board
members also reviewed the assumptions and cost allocation methods used by each
of the sub-advisers in preparing their profitability data.
Information was presented regarding the financial condition of GEAM and each of
the sub-advisers for various past periods. The Board members noted and
discussed the additional services provided by GEAM to the Fund compared to
other investment products managed by GEAM, and were provided a study conducted
by the Investment Company Institute that discusses and compares advisory fees
and services for mutual funds and institutional separate accounts. GEAM
reviewed the services related to the allocation of assets among, and oversight
of, multiple sub-advisers as a result of the Fund's multi-manager structure.
The Board noted that GEAM, and not the Fund, pays the sub-advisory fees to each
of the sub-advisers out of its advisory fee. The Board members determined that
GEAM and each of the sub-advisers should
26
Advisory and Administrative Agreement Approvals
and Renewals (unaudited)
- ---------------------------------------------------------------
be entitled to earn a reasonable level of profits for the services they provide
to the Funds. The Board members also recognized that GEAM had made significant
investments in its business and had not fully recovered the sums invested. The
Board also considered that, in the face of overall declining assets and
revenues over the course of the past year, GEAM continues to make a substantial
investment in fulfilling its obligations to the Fund and supporting its
Fund-related activities.
Based on their review, the Board, including the independent Board members,
concluded that they were satisfied that the level of profitability achieved by
GEAM and each of the sub-advisers from their relationship with the Fund was not
unreasonable or excessive.
The Extent To Which Economies Of Scale Would Be Realized As The Fund Grows And
Whether Fee Levels Would Reflect Such Economies Of Scale.
Although the Board noted that the Fund did not experience significant growth in
assets over the past year, the Board members considered the extent to which
economies of scale would be realized as the Fund grows, and whether fee levels
reflect these economies of scale for the benefit of Fund investors.
The Board members considered the substantial infrastructure investments that
GEAM has made with respect to its operations and its commitment to continue
investing resources to enhance services to Fund shareholders. The Board members
recognized the benefits to the Fund of GEAM's past investment in its operations
through the expenditure of sums to support its substantial infrastructure, and
that, with respect to all GEAM managed mutual funds, GEAM has not yet fully
recouped that investment. The Board members also recognized the benefits to the
Fund of being able to leverage a favorable cost structure achieved with respect
to the Fund's other operating expenses as a result of GEAM's large overall base
of assets under management and its vendor management practices.
Comparison of services to be rendered and fees to be paid.
The Board members discussed the services provided to the Fund by GEAM and each
of the sub-advisers, and the fees charged for those services, including the
services required of GEAM to oversee multiple sub-advisers. The Board members
reviewed information concerning the fee and expense ratios for the Fund and
comparative information with respect to similar products. They discussed that
the Fund's figures were within the applicable peer group range, although at the
higher end of the range. The Board members reviewed comparative fee information
with respect to any comparable mutual fund or other client accounts managed by
each of the sub-advisers. The Board, including the independent Board members,
concluded that, based on this information, the Fund's advisory fee and the
sub-advisory fees paid to each of the sub-advisers were reasonable in relation
to the services provided to the Fund.
Fall-Out Benefits.
The Board members considered other actual and potential financial benefits that
GEAM and each of the sub-advisers may derive from their respective
relationships with the Fund, including, to the extent applicable, soft dollar
commission benefits generated through Fund portfolio transactions. The Board
members noted, however, that the Fund benefits from the vast array of resources
available through GEAM, and that the Fund represents only a small portion of
the assets managed by GEAM.
Conclusion.
No single factor was determinative to the Board's decision. Based on their
discussion and such other matters as were deemed relevant, the Board, including
the independent Board members, concluded that renewal of the advisory and each
sub-advisory agreement was in the best interests of the shareholders of the
Fund.
27
Additional Information (unaudited)
- ---------------------------------------------------------------
Information about Directors and Executive Officers:
The business and affairs of the Company are managed under the direction of the
Company's Board of Directors. Information pertaining to the Directors and
officers of the Company is set forth below.
Interested Directors and Executive Officers
- --------------------------------------------------------------------------------
Michael J. Cosgrove
- --------------------------------------------------------------------------------
Address c/o GEAM 3001 Summer St. Stamford, CT 06905
Age 60
Position(s) Held with Fund Chairman of the Board and President
Term of Office and Length of Time Served Until successor is elected and
qualified - 13 years
Principal Occupation(s) During Past 5 years President and Chief Executive
Officer - Mutual Funds and Intermediary Business since March 2007; Executive
Vice President of GEAM from February 1997 to March 2007; Director of GEAM since
1988; Vice President, GE Capital Corporation, an indirect wholly-owned
subsidiary of GE, since December 1999; Executive Vice President - Sales and
Marketing of GEAM, a wholly-owned subsidiary of GE that is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, from
March 1993 to March 2007.
Number of Portfolios in Fund Complex Overseen by Director 51
Other Directorships Held by Director Chairman of the Board and President of GE
Funds since 1993, and GE Institutional Funds since its inception; Trustee of
General Electric Savings & Security Trust, General Electric S&S Income Fund,
General Electric S&S Program Mutual Fund ("GE Savings & Security Funds"), Elfun
Funds, General Electric Insurance Plan Trust, General Relief Loan Fund, and
General Electric Pension Trust since 1988; Trustee of Fordham University since
2002; Trustee of GE Volunteers since 1993; Director, GE Asset Management
(Ireland) since February 1999; Director, GE Asset Management Funds Plc., GE
Asset Canada Company, and GE Asset Management Limited since 1998.
- --------------------------------------------------------------------------------
Matthew J. Simpson
- --------------------------------------------------------------------------------
Address c/o GEAM 3001 Summer St. Stamford, CT 06905
Age 48
Position(s) Held with Fund Director and Executive Vice President
Term of Office and Length of Time Served Until successor is elected and
qualified - 2 years
Principal Occupation(s) During Past 5 years Executive Vice President, General
Counsel and Secretary of GEAM since July 2007; Senior Vice President and
General Counsel - Marketing and Client Services (formerly Asset Management
Services), at GEAM and Senior Vice President and General Counsel of GEAMS from
February 1997 to June 2007; Vice President and Associate General Counsel of
GEAM from October 1992 to February 1997; Secretary of Fund from 1997 to June
2007; Vice President of Fund from September 2003 to June 2007; Vice President
of GE Institutional Funds from September 2003 to June 2007; Secretary of GE
Institutional Funds and GE LifeStyle Funds from 1997 to June 2007; Vice
President of Elfun Funds and GE Savings & Security Funds from October 2003 to
June 2007; Assistant Secretary of Elfun Funds and GE Savings & Security Funds
from 1998 to June 2007.
Number of Portfolios in Fund Complex Overseen by Director 51
Other Directorships Held by Director Trustee of GE Funds, GE Institutional
Funds, Elfun Funds and GE Savings & Security Funds since July 2007.
28
Additional Information (unaudited)
- ---------------------------------------------------------------
- --------------------------------------------------------------------------------
Scott H. Rhodes
- --------------------------------------------------------------------------------
Address c/o GEAM 3001 Summer St. Stamford, CT 06905
Age 49
Position(s) Held with Fund Treasurer
Term of Office and Length of Time Served Until successor is elected and
qualified - 3 years
Principal Occupation(s) During Past 5 years GEAM Mutual Funds Operations
Manager since September 2005; Treasurer of GE Institutional Funds, GE LifeStyle
Funds and GE Investments Funds since November 2005 and Elfun Funds and GE
Savings & Security Funds since September 2005; from August 2004 to September
2005 Vice President, U.S. Trust Company, N.A. and Assistant Treasurer of
Excelsior Funds, Inc., Excelsior Funds Trust, and Excelsior Tax Exempt Funds,
Inc.; from January 2004 to August 2004, Vice President BlackRock Financial
Management, Inc.; from December 1996 to November 2003, Controller - Mutual
Funds, American Skandia Investment Services, Inc. and Assistant Treasurer of
American Skandia Trust and American Skandia Advisor Funds, Inc.
Number of Portfolios in Fund Complex Overseen by Director N/A
Other Directorships Held by Director N/A
- --------------------------------------------------------------------------------
Jeanne M. LaPorta
- --------------------------------------------------------------------------------
Address c/o GEAM 3001 Summer St. Stamford, CT 06905
Age 44
Position(s) Held with Fund Vice President and Secretary
Term of Office and Length of Time Served Until successor is elected and
qualified - 5 years (Vice President); 3 years (Secretary)
Principal Occupation(s) During Past 5 years Senior Vice President and Deputy
General Counsel at GE Asset Management since October 2007; Vice President and
Associate General Counsel - Marketing and Client Services (formerly Asset
Management Services) at GEAM from May 1997 to October 2007; Vice President and
Assistant Secretary of GE Funds and GE Institutional Funds from September 2003
to July 2007; Vice President and Secretary of GE Funds and GE Institutional
Funds since July 2007; Vice President and Assistant Secretary of Elfun Funds
and GE Savings & Security Funds since October 2003.
Number of Portfolios in Fund Complex Overseen by Director N/A
Other Directorships Held by Director N/A
29
Additional Information (unaudited)
- ---------------------------------------------------------------
Non-Interested Directors
- --------------------------------------------------------------------------------
John R. Costantino
- --------------------------------------------------------------------------------
Address c/o GEAM 3001 Summer St. Stamford, CT 06905
Age 63
Position(s) Held with Fund Director
Term of Office and Length of Time Served Until successor is elected and
qualified - 13 years
Principal Occupation(s) During Past 5 years General Partner, NGN Capital LLC
since 2006; Managing Director, Vice President of Walden Capital Management
since 1996.
Number of Portfolios in Fund Complex Overseen by Director 43
Other Directorships Held by Director Trustee of GE Funds since 1993, GE
Institutional Funds since its inception; Trustee of Fordham University from
1989 to 1995 and 2001 to 2007 and Trustee Emeritus since 2007; Trustee of
NeuroScience Research Institute since 1986; Trustee of Gregorian University
Foundation from 1992 to 2007; Director of Artes medical from 2006 to 2008.
- --------------------------------------------------------------------------------
William J. Lucas
- --------------------------------------------------------------------------------
Address c/o GEAM 3001 Summer St. Stamford, CT 06905
Age 62
Position(s) Held with Fund Director
Term of Office and Length of Time Served Until successor is elected and
qualified - 13 years
Principal Occupation(s) During Past 5 years Vice President and Treasurer of
Fairfield University since 1983.
Number of Portfolios in Fund Complex Overseen by Director 43
Other Directorships Held by Director Trustee of GE Funds since 1993, and GE
Institutional Funds since its inception.
- --------------------------------------------------------------------------------
Robert P. Quinn
- --------------------------------------------------------------------------------
Address c/o GEAM 3001 Summer St. Stamford, CT 06905
Age 74
Position(s) Held with Fund Director
Term of Office and Length of Time Served Until successor is elected and
qualified - 13 years
Principal Occupation(s) During Past 5 years Retired since 1983 from Salomon
Brothers Inc.
Number of Portfolios in Fund Complex Overseen by Director 43
Other Directorships Held by Director Trustee of GE Funds since 1993, and GE
Institutional Funds since its inception; Trustee, St. Francis Hospital Corp.
- --------------------------------------------------------------------------------
The Statement of Additional Information for the Fund includes additional
information about the Directors and Officers and is available, without charge,
upon request by calling 1-800-493-3042.
30
Investment Team
- ----------------------------------------------------
Investment Adviser and Administrator
GE Asset Management Incorporated
Board of Directors
Michael J. Cosgrove, Chairman
John R. Costantino
William J. Lucas
Robert P. Quinn
Matthew J. Simpson
Secretary
Jeanne M. LaPorta
Assistant Secretaries
Joseph A. Carucci
Joon Won Choe
Kimberley Costello
Michelle Matzelle
Treasurer
Scott H. Rhodes
Assistant Treasurers
Scott R. Fuchs
Christopher M. Isaacs
Distributor
GE Investment Distributors, Inc.
Member FINRA and SIPC
Counsel
Sutherland, Asbill & Brennan, LLP
Custodian
State Street Bank & Trust Company
Independent Registered Public Accounting Firm
KPMG LLP
Officers of the Investment Adviser
James W. Ireland, President and Chief Executive Officer
Cheryl H. Beacock, Senior Vice President, Human Resources
Daniel O. Colao, Executive Vice President, Chief Financial Officer
Michael J. Cosgrove, President and Chief Executive Officer - Mutual Funds &
Intermediary Business
Paul M. Colonna, President and Chief Investment Officer - Fixed Income
Investments
Amiel Goldberg, Senior Vice President, Chief Risk Officer
Ralph R. Layman, President and Chief Investment Officer - Public Equity
Investments (since July 2009)
Maureen B. Mitchell, President - Institutional Sales and Marketing (since July
2009)
Matthew J. Simpson, Executive Vice President, General Counsel and Secretary
Judith A. Studer, Chief Market Strategist (since July 2009)
Don W. Torey, President - Alternative Investments
John J. Walker, Executive Vice President, Chief Operating Officer
David Wiederecht, President and Chief Investment Officer - Investment Strategies
31
Investment Adviser
GE Asset Management Incorporated
3001 Summer Street
PO Box 7900
Stamford, CT 06904-7900
Distributor
GE Investment Distributors, Inc.
member FINRA and SIPC
3001 Summer Street
PO Box 7900
Stamford, CT 06904-7900
The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission for the first and third quarters of each
fiscal year on Form N-Q. The Fund's Forms N-Q, as well as a description of
the policies and procedures that the Fund uses to determine how to vote
proxies (if any) relating to portfolio securities is available without
charge (i) upon request, by calling 1-800-493-3042; (ii) on the Fund's
website at http://www.geam.com; and (iii) on the Commission's website at
http://www.sec.gov. The Fund's Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC--information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to
portfolio securities during the most recently disclosed 12-month period
ended June 30 is available without charge (i) through the Fund's website at
http://www.geam.com; and (ii) on the Commission's website at
http://www.sec.gov.
[LOGO] GE
GE Investments Funds, Inc.
S&P 500 Index Fund
Annual Report
December 31, 2009
[LOGO] GE
GE Investments Funds, Inc.
S&P 500 Index Fund Contents
- ------------------------------------------------------------
NOTES TO PERFORMANCE.................................... 1
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS.............. 2
NOTES TO SCHEDULE OF INVESTMENTS........................ 12
FINANCIAL STATEMENTS
Financial Highlights................................. 13
Statement of Assets and Liabilities.................. 14
Statement of Operations.............................. 15
Statements of Changes in Net Assets.................. 16
Notes to Financial Statements........................ 17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. 24
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL........... 25
ADDITIONAL INFORMATION.................................. 28
INVESTMENT TEAM......................................... 31
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
Notes to Performance December 31, 2009
- ---------------------------------------------------------------------
Information on the following performance pages relating
to the GE Investments S&P 500 Index Fund one year total return and Schedule of
Investments is audited. All other information, including the portfolio manager
Q&A pages, is unaudited.
Total returns take into account changes in share price and assume reinvestment
of all dividends and capital gains distributions, if any. Total returns shown
are net of Fund expenses but do not reflect fees and charges associated with
the variable contracts such as administrative fees, account charges and
surrender charges, which, if reflected, would reduce the Fund's total returns
for all periods shown.
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be higher or lower than the performance
data quoted. Periods less than one year are not annualized. Please call
800-493-3042 or visit the Fund's website at http://www.geam.com for the most
recent month-end performance data.
An investment in a Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency. An investment in a Fund is subject to risk, including
possible loss of principal invested.
The Standard & Poor's ("S&P") 500(R) Composite Price Index of stocks (S&P 500
Index) is an unmanaged index and does not reflect the actual cost of investing
in the instruments that comprise the index.
The S&P 500 Index is a market capitalization-weighted index of stocks of 500
large U.S. companies, which is widely used as a measure of large-cap stock
market performance. The results shown for the foregoing index assume the
reinvestment of net dividends or interest.
The peer universe of the underlying annuity funds used in our peer group
average return calculation is based on the blend of Morningstar peer
categories, as shown. Morningstar is an independent mutual fund rating service.
A Fund's performance may be compared to or ranked within a universe of mutual
funds with investment objectives and policies similar but not necessarily
identical to the Fund's.
The S&P 500 Index Fund is not sponsored, endorsed, sold or promoted by
Standard & Poor's, and Standard & Poor's makes no representation or warranty,
express or implied, to the investors of the Fund or any member of the public
regarding the advisability of investing in the securities generally or in this
Fund particularly or the ability of the S&P 500 Index Fund to track general
stock market performance.
(C)2009 Morningstar, Inc. All Rights Reserved. The information contained
herein: (1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is no warranted to be accurate, complete
or timely. Neither Morningstar nor its content providers are responsible for
any damage or losses relating from any use of this information. Past
performance is no guarantee or future results.
- --------------
GE Investment Distributors, Inc., Member of FINRA & SIPC, is the principal
underwriter and distributor of the GE Investment Funds, Inc. and a wholly owned
subsidiary of GE Asset Management Incorporated, the investment adviser of the
Fund.
1
S&P 500 Index Fund
- --------------------------------------------------------------------------------
[GRAPHIC]
SSgA Funds Management, Inc. ("SSgA FM") is the sub-adviser to the S&P 500 Index
Fund. SSgA FM is registered with the SEC as an investment adviser under the
Investment Advisers Act of 1940, as amended, and is a wholly owned subsidiary
of State Street Corporation. The Fund is managed by a team of portfolio
managers composed of the following members: Karl Schneider and John Tucker.
Karl Schneider is the lead portfolio manager for the Fund, and is a Vice
President of State Street Global Advisors ("SSgA") and a Principal of SSgA FM.
Karl joined the firm in 1996 and is a member of the firm's Global Structured
Products Team. Karl manages a variety of the firm's domestic and international
passive funds. Karl holds a BS degree in Finance and Investments from Babson
College and an MS degree in Finance from Boston College. Additionally, he holds
a Series 3 license from the National Futures Association.
John F. Tucker, CFA, is a Vice President of SSgA and a Principal of SSgA FM.
John joined the firm in 1988 and is the Head of US Equity Markets in the Global
Structured Products Team. He is also responsible for all derivative strategies
and Exchange Traded Funds. John received a BA in Economics from Trinity College
and an MS in Finance from Boston College. He is a member of the Boston Security
Analysts Society and the CFA Institute.
Q. HOW DID THE S&P 500 INDEX FUND PERFORM COMPARED TO ITS BENCHMARK AND
MORNINGSTAR PEER GROUP FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2009?
A. For the twelve-month period ended December 31, 2009, Class 1 shares of the
S&P 500 Index Fund returned 26.30%. The S&P 500 Index, the Fund's benchmark,
returned 26.46% and the Fund's Morningstar peer group of 464 US Insurance
Large Blend funds returned an average of 28.47% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE?
A. Lackluster holiday trading marked the end of 2009, but the quiet close did
little to blemish broadly positive results for US equities during the latest
quarter and year. Indeed, after a harrowing start, the past year saw
remarkably persistent recovery in both economic prospects and risk
appetites. While historic 2007 highs remained distant memories, investor
sentiment still benefited immensely as many market averages regained levels
that had broken down badly after the September 2008 collapse of Lehman
Brothers. After a remarkable string of six consecutive down quarters from
fourth quarter 2007 through first quarter 2009, the S&P 500 has now rallied
to achieve three quarters in a row of positive gains.
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE?
A. By utilizing a passive, full replication investment style, the Fund owned
the same stocks and sectors in approximately the same weights as the S&P 500
Index. As of December 31, 2009, the four largest sectors in the S&P 500
Index were Information Technology (19.9%), Financials (14.4%), Health Care
(12.6%), and Energy (11.5%). The highest returning sector for the last
twelve months was Information Technology (+61%) followed by Materials
(+48%). The lowest returning sectors were Telecommunication Services (+8%)
and Utilities (+11%).
Q. WERE THERE ANY SIGNIFICANT CHANGES TO THE FUND DURING THE PERIOD?
A. Over the last twelve months there were 26 index addition/deletion changes
announced by Standard & Poors that impacted the Fund. Not all the additions
and deletions were bought and sold in the Fund, however, as many changes
were as a result of a merger or acquisition, or a spin-off involving another
S&P 500 constituent. Additionally, there were numerous index share changes
throughout the period, as well as at each quarter's end. Many of the share
changes also required no trading, as the weight change within the portfolio
was negligible.
2
S&P 500 Index Fund
- --------------------------------------------------------------------------------
Understanding Your Fund's Expenses
As a shareholder of the Fund you incur ongoing expenses, which include
portfolio management fees, professional fees, administrative fees and other
Fund expenses. The following example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors during the period. The information in the
following table is based on an investment of $1,000, which is invested at the
beginning of the period and held for the entire six-month period ended
December 31, 2009.
ACTUAL EXPENSES
The first section of the table provides information about actual account values
and actual expenses. You may use the information in this section, together with
the amount you invested, to estimate the expenses that you paid over the
period. To do so, simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and
an assumed rate of return of 5% per year before expenses, which is not the
Fund's actual return. You may use this information to compare the ongoing costs
of investing in the Fund and other funds. To do so, compare this 5%
hypothetical example with the 5% hypothetical examples that appear in the
shareholders reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2009 - DECEMBER 31, 2009
- ---------------------------------------------------------------------------------------------------
ACCOUNT VALUE AT THE EXPENSES PAID
($) END OF THE PERIOD ($) DURING THE PERIOD ($)*
- ---------------------------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 1,224.73 2.41
- ---------------------------------------------------------------------------------------------------
Hypothetical 5% Return (2.5% for the period) 1,000.00 1,022.78 2.19
- ---------------------------------------------------------------------------------------------------
*Expenses are equal to the Fund's annualized expense ratio of 0.43% (for the
period July 1, 2009--December 31, 2009), multiplied by the average account
value over the period, multiplied by 184/365 (to reflect the six month period)
**Actual Fund Return for the six-month period ended December 31, 2009 was:
22.47%.
3
S&P 500 Index Fund
- --------------------------------------------------------------------------------
CHANGE IN VALUE OF A $10,000 INVESTMENT
CLASS 1 SHARES
- --------------------------------------------------------------------------------
[CHART]
GEI S&P 500 Index S&P 500 Index
---------------- -------------
31-Dec-99 10,000.00 10,000.00
1-Dec-00 9,057.41 9,081.65
1-Dec-01 7,946.42 7,999.85
1-Dec-02 6,169.06 6,231.73
1-Dec-03 7,913.27 8,021.99
1-Dec-04 8,741.10 8,894.89
1-Dec-05 9,135.05 9,332.39
1-Dec-06 10,544.51 10,806.20
1-Dec-07 11,081.81 11,400.06
1-Dec-08 6,936.88 7,182.28
1-Dec-09 8,761.28 9,083.04
TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 2009
- --------------------------------------------------------------------------------
CLASS 1 SHARES
- --------------------------------------------------------------------------------
ONE FIVE TEN ENDING VALUE OF A
YEAR YEAR YEAR $10,000 INVESTMENT
------------------------------------------------------------------------
S&P 500 Index Fund 26.30% 0.05% -1.31% $8,761
------------------------------------------------------------------------
S&P 500 Index 26.46% 0.42% -0.96% $9,083
------------------------------------------------------------------------
Morningstar peer group average* 28.47% 0.39% -0.81%
------------------------------------------------------------------------
Inception date 4/15/85
------------------------------------------------------------------------
[GRAPHIC]
INVESTMENT PROFILE
A Mutual Fund designed for investors
who seek growth of capital and
accumulation of income that
corresponds to the investment return
of the Standard & Poor's 500
Composite Stock Index by investing at
least 80% of its net assets in equity
securities of companies contained in
that Index.
TOP TEN LARGEST EQUITY HOLDINGS
(EXCLUDES SHORT-TERM INVESTMENTS)
AS OF DECEMBER 31, 2009
as a % of Market Value
--------------------------------------------
Exxon Mobil Corp. 3.21%
--------------------------------------------
Microsoft Corp. 2.33%
--------------------------------------------
Apple Inc. 1.88%
--------------------------------------------
Johnson & Johnson 1.76%
--------------------------------------------
The Procter & Gamble Co. 1.75%
--------------------------------------------
International Business Machines Corp. 1.70%
--------------------------------------------
AT&T Inc. 1.64%
--------------------------------------------
JPMorgan Chase & Co. 1.62%
--------------------------------------------
General Electric Co. 1.59%
--------------------------------------------
Chevron Corp. 1.53%
--------------------------------------------
PORTFOLIO COMPOSITION AS OF DECEMBER 31, 2009
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $223,803 (in thousands)
[CHART]
Information Technology 19.5%
Financials 14.3%
Healthcare 12.4%
Energy 11.3%
Consumer Staples 11.2%
Industrials 10.0%
Consumer Discretionary 9.4%
Utilities 3.6%
Materials 3.6%
Telecommunication Services 3.1%
Short-Term 1.6%
Other Investments 0.0%**
* Morningstar performance comparisons are based on average annual total returns
for the one year, five-year, and ten-year periods indicated in the Large
Blend peer group consisting of 464, 337 and 182 underlying annuity funds,
respectively.
**Less than 0.01%
See Notes to Performance on page 1 for further information, including an
explanation of Morningstar peer categories.
Past performance does not predict future performance and the graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
4
S&P 500 INDEX FUND
Schedule of Investments December 31, 2009
- --------------------------------------------------------------------------------
S&P 500 INDEX FUND
NUMBER
OF SHARES VALUE
COMMON STOCK -- 98.2%+
-----------------------------------------------------------------------
AEROSPACE & DEFENSE -- 2.7%
Boeing Co............................... 16,186 $ 876,148 /(d)/
General Dynamics Corp................... 8,467 577,195
Goodrich Corp........................... 2,784 178,872
Honeywell International Inc............. 16,943 664,166
ITT Corp................................ 4,126 205,227
L-3 Communications Holdings, Inc........ 2,600 226,070
Lockheed Martin Corp.................... 7,152 538,903
Northrop Grumman Corp................... 7,022 392,179
Precision Castparts Corp................ 3,100 342,085
Raytheon Co............................. 8,569 441,475
Rockwell Collins, Inc................... 3,568 197,524
United Technologies Corp................ 20,872 1,448,726 /(d)/
6,088,570
AIR FREIGHT & LOGISTICS -- 1.0%
CH Robinson Worldwide, Inc.............. 3,800 223,174
Expeditors International of Washington,
Inc.................................... 4,700 163,231
FedEx Corp.............................. 6,911 576,723
United Parcel Service, Inc. (Class B)... 21,996 1,261,911
2,225,039
AIRLINES -- 0.1%
Southwest Airlines Co................... 16,349 186,869
AUTO COMPONENTS -- 0.2%
Johnson Controls, Inc................... 14,946 407,129
The Goodyear Tire & Rubber Co........... 5,519 77,818 /(a)/
484,947
AUTOMOBILES -- 0.4%
Ford Motor Co........................... 72,327 723,270 /(a)/
Harley-Davidson, Inc.................... 5,400 136,080
859,350
BEVERAGES -- 2.6%
Brown-Forman Corp. (Class B)............ 2,347 125,729
Coca-Cola Enterprises, Inc.............. 7,118 150,902
Constellation Brands, Inc. (Class A).... 4,700 74,871 /(a)/
Dr Pepper Snapple Group, Inc............ 5,500 155,650 /(a)/
Molson Coors Brewing Co. (Class B)...... 3,598 162,486
Pepsi Bottling Group, Inc............... 3,300 123,750
PepsiCo, Inc............................ 34,674 2,108,179 /(d)/
The Coca-Cola Co........................ 51,502 2,935,614 /(d)/
5,837,181
BIOTECHNOLOGY -- 1.5%
Amgen Inc............................... 22,422 1,268,413 /(a,d)/
NUMBER
OF SHARES VALUE
Biogen Idec Inc..................... 6,500 $ 347,750 /(a)/
Celgene Corp........................ 10,263 571,444 /(a)/
Cephalon, Inc....................... 1,700 106,097 /(a)/
Genzyme Corp........................ 5,900 289,159 /(a)/
Gilead Sciences, Inc................ 20,049 867,721 /(a)/
3,450,584
BUILDING PRODUCTS -- 0.1%
Masco Corp.......................... 7,990 110,342
CAPITAL MARKETS -- 2.7%
Ameriprise Financial, Inc........... 5,504 213,665
E*Trade Financial Corp.............. 34,400 60,200 /(a)/
Federated Investors, Inc. (Class B). 2,100 57,750
Franklin Resources, Inc............. 3,300 347,655
Invesco Ltd......................... 9,200 216,108
Janus Capital Group, Inc............ 4,300 57,835
Legg Mason, Inc..................... 3,400 102,544
Morgan Stanley...................... 30,296 896,762
Northern Trust Corp................. 5,300 277,720
State Street Corp................... 10,900 474,586 /(c)/
T Rowe Price Group, Inc............. 5,700 303,525
The Bank of New York Mellon Corp.... 26,803 749,680
The Charles Schwab Corp............. 21,411 402,955
The Goldman Sachs Group, Inc........ 11,399 1,924,607
6,085,592
CHEMICALS -- 1.9%
Abu Dhabi National Energy Co........ 1,900 90,440
Air Products & Chemicals, Inc....... 4,632 375,470 /(d)/
CF Industries Holdings, Inc......... 1,170 106,213
Eastman Chemical Co................. 1,559 93,914
Ecolab Inc.......................... 5,252 234,134
EI Du Pont de Nemours & Co.......... 20,061 675,454
FMC Corp............................ 1,700 94,792
International Flavors & Fragrances
Inc................................ 1,847 75,986
Monsanto Co......................... 12,123 991,055 /(d)/
PPG Industries, Inc................. 3,737 218,764
Praxair, Inc........................ 6,865 551,328
Sigma-Aldrich Corp.................. 2,682 135,521
The Dow Chemical Co................. 25,394 701,636
4,344,707
COMMERCIAL BANKS -- 2.7%
BB&T Corp........................... 15,300 388,161
Comerica Inc........................ 3,356 99,237
Fifth Third Bancorp................. 17,316 168,831
First Horizon National Corp......... 4,963 66,507 /(a)/
Huntington Bancshares Inc........... 15,934 58,159
Keycorp............................. 19,628 108,935
M&T Bank Corp....................... 1,800 120,402
Marshall & Ilsley Corp.............. 11,698 63,754
PNC Financial Services Group, Inc... 10,304 543,948
Regions Financial Corp.............. 25,368 134,197
SunTrust Banks, Inc................. 11,329 229,865
US Bancorp.......................... 42,609 959,129
See Notes to Schedule of Investments on page 12 and Notes to Financial
Statements on page 17.
5
S&P 500 INDEX FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
NUMBER
OF SHARES VALUE
Wells Fargo & Co...................... 113,602 $ 3,066,118
Zions Bancorporation.................. 2,500 32,075
6,039,318
COMMERCIAL SERVICES & SUPPLIES -- 0.5%
Avery Dennison Corp................... 2,655 96,881
Cintas Corp........................... 2,800 72,940
Iron Mountain Inc..................... 4,200 95,592 /(a)/
Pitney Bowes Inc...................... 4,632 105,424
Republic Services, Inc................ 7,050 199,585
RR Donnelley & Sons Co................ 4,399 97,966
Stericycle, Inc....................... 1,800 99,306 /(a)/
Waste Management, Inc................. 10,703 361,868
1,129,562
COMMUNICATIONS EQUIPMENT -- 2.5%
Cisco Systems, Inc.................... 127,864 3,061,064 /(a,d)/
Harris Corp........................... 3,000 142,650
JDS Uniphase Corp..................... 4,450 36,712 /(a)/
Juniper Networks, Inc................. 11,500 306,705 /(a)/
Motorola, Inc......................... 51,350 398,476
QUALCOMM Inc.......................... 37,129 1,717,588
Tellabs, Inc.......................... 9,252 52,551 /(a)/
5,715,746
COMPUTERS & PERIPHERALS -- 5.8%
Apple Inc............................. 19,999 4,216,989 /(a)/
Dell Inc.............................. 38,328 550,390 /(a,d)/
EMC Corp.............................. 45,014 786,395 /(a)/
Hewlett-Packard Co.................... 52,449 2,701,648
International Business Machines
Corp................................. 29,130 3,813,117
Lexmark International, Inc. (Class A). 1,700 44,166 /(a)/
NetApp, Inc........................... 7,400 254,486 /(a)/
QLogic Corp........................... 2,200 41,514 /(a)/
SanDisk Corp.......................... 4,900 142,051 /(a)/
Sun Microsystems, Inc................. 16,790 157,322 /(a)/
Teradata Corp......................... 3,800 119,434 /(a)/
Western Digital Corp.................. 4,900 216,335 /(a)/
13,043,847
CONSTRUCTION & ENGINEERING -- 0.2%
Fluor Corp............................ 4,078 183,673
Jacobs Engineering Group, Inc......... 2,800 105,308 /(a)/
Quanta Services, Inc.................. 4,700 97,948 /(a)/
386,929
CONSTRUCTION MATERIALS -- 0.1%
Vulcan Materials Co................... 2,800 147,476
CONSUMER FINANCE -- 0.8%
American Express Co................... 26,491 1,073,415 /(d)/
Capital One Financial Corp............ 10,125 388,192
Discover Financial Services........... 12,298 180,904
SLM Corp.............................. 10,200 114,954 /(a)/
1,757,465
NUMBER
OF SHARES VALUE
CONTAINERS & PACKAGING -- 0.2%
Ball Corp.......................... 2,116 $ 109,397
Bemis Company Inc.................. 2,362 70,033
Owens-Illinois, Inc................ 3,900 128,193 /(a)/
Pactiv Corp........................ 2,948 71,165 /(a)/
Sealed Air Corp.................... 3,414 74,630
453,418
DISTRIBUTORS -- 0.1%
Genuine Parts Co................... 3,396 128,912
DIVERSIFIED CONSUMER SERVICES -- 0.2%
Apollo Group, Inc. (Class A)....... 2,900 175,682 /(a)/
DeVry, Inc......................... 1,400 79,422
H&R Block Inc...................... 7,492 169,469
424,573
DIVERSIFIED FINANCIAL SERVICES -- 4.2%
Bank of America Corp............... 220,029 3,313,637
Citigroup Inc...................... 433,606 1,435,236 /(d)/
CME Group Inc...................... 1,461 490,823
IntercontinentalExchange, Inc...... 1,600 179,680 /(a)/
JPMorgan Chase & Co................ 87,250 3,635,708 /(d)/
Leucadia National Corp............. 4,400 104,676 /(a)/
Moody's Corp....................... 4,084 109,451
NYSE Euronext...................... 5,800 146,740
The NASDAQ OMX Group Inc........... 3,300 65,406 /(a)/
9,481,357
DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.8%
AT&T Inc........................... 130,680 3,662,960
CenturyTel, Inc.................... 6,700 242,607
Frontier Communications Corp....... 7,600 59,356
Qwest Communications International
Inc............................... 33,048 139,132
Verizon Communications Inc......... 63,167 2,092,723
Windstream Corp.................... 9,643 105,977
6,302,755
ELECTRIC UTILITIES -- 2.0%
Allegheny Energy, Inc.............. 3,800 89,224
American Electric Power Company
Inc............................... 10,725 373,123 /(d)/
Duke Energy Corp................... 29,009 499,245
Edison International............... 7,042 244,921
Entergy Corp....................... 4,185 342,500
Exelon Corp........................ 14,652 716,043
FirstEnergy Corp................... 6,620 307,499
FPL Group, Inc..................... 9,162 483,937
Northeast Utilities................ 4,000 103,160
Pepco Holdings, Inc................ 4,600 77,510
Pinnacle West Capital Corp......... 2,200 80,476
PPL Corp........................... 8,444 272,826
Progress Energy, Inc............... 6,256 256,559
The Southern Co.................... 17,558 585,033
4,432,056
See Notes to Schedule of Investments on page 12 and Notes to Financial
Statements on page 17.
6
S&P 500 INDEX FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
NUMBER
OF SHARES VALUE
ELECTRICAL EQUIPMENT -- 0.5%
Emerson Electric Co............. 16,738 $ 713,039
First Solar, Inc................ 1,110 150,294 /(a)/
Rockwell Automation, Inc........ 3,068 144,135
Roper Industries Inc............ 2,000 104,740 /(a)/
1,112,208
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 0.6%
Agilent Technologies, Inc....... 7,685 238,773 /(a)/
Amphenol Corp. (Class A)........ 3,800 175,484
Corning Inc..................... 34,239 661,155
FLIR Systems, Inc............... 3,200 104,704 /(a)/
Jabil Circuit, Inc.............. 3,900 67,743
Molex Inc....................... 2,950 63,572
1,311,431
ENERGY EQUIPMENT & SERVICES -- 1.8%
Baker Hughes Inc................ 6,950 281,336
BJ Services Co.................. 6,500 120,900
Cameron International Corp...... 5,200 217,360 /(a)/
Diamond Offshore Drilling, Inc.. 1,600 157,472
FMC Technologies, Inc........... 2,743 158,655 /(a)/
Halliburton Co.................. 20,191 607,547
Nabors Industries Ltd........... 6,400 140,096 /(a)/
National Oilwell Varco, Inc..... 9,300 410,037 /(a)/
Rowan Companies, Inc............ 2,677 60,607
Schlumberger Ltd................ 26,533 1,727,033
Smith International, Inc........ 5,200 141,284
4,022,327
FOOD & STAPLES RETAILING -- 2.6%
Costco Wholesale Corp........... 9,717 574,955
CVS Caremark Corp............... 31,327 1,009,043
Safeway Inc..................... 8,700 185,223
SUPERVALU, Inc.................. 5,113 64,986
Sysco Corp...................... 13,244 370,037
The Kroger Co................... 14,466 296,987
Walgreen Co..................... 21,813 800,973
Wal-Mart Stores, Inc............ 47,187 2,522,145
Whole Foods Market, Inc......... 3,300 90,585 /(a)/
5,914,934
FOOD PRODUCTS -- 1.6%
Archer-Daniels-Midland Co....... 14,286 447,295
Campbell Soup Co................ 4,315 145,847
ConAgra Foods, Inc.............. 9,968 229,762
Dean Foods Co................... 3,700 66,748 /(a)/
General Mills, Inc.............. 7,281 515,568
HJ Heinz Co..................... 7,097 303,468
Hormel Foods Corp............... 1,700 65,365
Kellogg Co...................... 5,590 297,388
Kraft Foods Inc. (Class A)...... 32,890 893,950
McCormick & Company Inc......... 2,900 104,777
Sara Lee Corp................... 15,257 185,830
The Hershey Co.................. 3,684 131,850
The JM Smucker Co............... 2,717 167,775
Tyson Foods, Inc. (Class A)..... 6,300 77,301
3,632,924
NUMBER
OF SHARES VALUE
GAS UTILITIES -- 0.2%
EQT CORP............................... 2,914 $ 127,983
Nicor Inc.............................. 843 35,490
Questar Corp........................... 4,000 166,280
329,753
HEALTHCARE EQUIPMENT & SUPPLIES -- 2.0%
Baxter International Inc............... 13,429 788,014 /(d)/
Becton Dickinson & Co.................. 5,288 417,012
Boston Scientific Corp................. 33,543 301,887 /(a)/
CareFusion Corp........................ 3,875 96,914 /(a)/
CR Bard, Inc........................... 2,102 163,746
DENTSPLY International Inc............. 3,500 123,095
Hospira, Inc........................... 3,439 175,389 /(a)/
Intuitive Surgical, Inc................ 860 260,855 /(a)/
Medtronic, Inc......................... 24,432 1,074,519
St Jude Medical, Inc................... 7,392 271,878 /(a)/
Stryker Corp........................... 6,252 314,913
Varian Medical Systems, Inc............ 2,700 126,495 /(a)/
Zimmer Holdings, Inc................... 4,800 283,728 /(a)/
4,398,445
HEALTHCARE PROVIDERS & SERVICES -- 2.1%
Aetna Inc.............................. 9,608 304,574
AmerisourceBergen Corp................. 6,161 160,617
Cardinal Health, Inc................... 8,051 259,564
CIGNA Corp............................. 5,989 211,232
Coventry Health Care, Inc.............. 3,400 82,586 /(a)/
DaVita Inc............................. 2,300 135,102 /(a)/
Express Scripts, Inc................... 6,100 527,345 /(a)/
Humana Inc............................. 3,627 159,189 /(a)/
Laboratory Corporation of America
Holdings.............................. 2,400 179,616 /(a)/
McKesson Corp.......................... 6,002 375,125
Medco Health Solutions, Inc............ 10,566 675,273 /(a)/
Patterson Companies, Inc............... 2,100 58,758 /(a)/
Quest Diagnostics Inc.................. 3,500 211,330
Tenet Healthcare Corp.................. 10,095 54,412 /(a)/
UnitedHealth Group, Inc................ 25,876 788,700
WellPoint, Inc......................... 10,200 594,558 /(a)/
4,777,981
HEALTHCARE TECHNOLOGY -- 0.0%*
IMS Health Inc......................... 3,857 81,228
HOTELS RESTAURANTS & LEISURE -- 1.5%
Carnival Corp.......................... 9,500 301,055 /(a)/
Darden Restaurants, Inc................ 3,229 113,241
International Game Technology.......... 6,300 118,251
Marriott International, Inc. (Class A). 5,714 155,706
McDonald's Corp........................ 23,990 1,497,936
Starbucks Corp......................... 16,398 378,138 /(a)/
Starwood Hotels & Resorts Worldwide,
Inc................................... 4,300 157,251
Wyndham Worldwide Corp................. 3,849 77,634
Wynn Resorts Ltd....................... 1,500 87,345 /(a)/
Yum! Brands, Inc....................... 10,429 364,702
3,251,259
See Notes to Schedule of Investments on page 12 and Notes to Financial
Statements on page 17.
7
S&P 500 INDEX FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
NUMBER
OF SHARES VALUE
HOUSEHOLD DURABLES -- 2.8%
Black & Decker Corp................ 1,307 $ 84,733
DR Horton, Inc..................... 6,500 70,655
Fortune Brands, Inc................ 3,341 144,331
Harman International Industries,
Inc............................... 1,200 42,336
Leggett & Platt, Inc............... 3,300 67,320
Lennar Corp. (Class A)............. 3,200 40,864
Newell Rubbermaid Inc.............. 5,856 87,899
Pulte Homes, Inc................... 7,435 74,350
Whirlpool Corp..................... 1,643 132,524
Clorox Co.......................... 3,084 188,124
Colgate-Palmolive Co............... 11,072 909,565
Kimberly-Clark Corp................ 9,136 582,055 /(d)/
The Procter & Gamble Co............ 64,673 3,921,124
6,345,880
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.2%
Constellation Energy Group, Inc.... 4,503 158,371
The AES Corp....................... 14,600 194,326 /(a)/
352,697
INDUSTRIAL CONGLOMERATES -- 2.2%
General Electric Co................ 235,862 3,568,592 /(f)/
Textron, Inc....................... 5,725 107,687
3M Co.............................. 15,580 1,287,999
4,964,278
INSURANCE -- 2.4%
AFLAC Inc.......................... 10,400 481,000
American International Group, Inc.. 3,025 90,690 /(a)/
AON Corp........................... 6,136 235,254
Assurant, Inc...................... 2,500 73,700
Chubb Corp......................... 7,594 373,473
Cincinnati Financial Corp.......... 3,592 94,254
Genworth Financial, Inc. (Class A). 10,800 122,580 /(a)/
Hartford Financial Services Group,
Inc............................... 8,304 193,151
Lincoln National Corp.............. 6,542 162,765
Loews Corp......................... 8,066 293,199
Marsh & McLennan Companies, Inc.... 11,953 263,922
MetLife, Inc....................... 18,073 638,881
Principal Financial Group, Inc..... 7,300 175,492
Prudential Financial, Inc.......... 10,300 512,528
The Allstate Corp.................. 11,886 357,055 /(d)/
The Progressive Corp............... 14,873 267,565
The Travelers Companies, Inc....... 12,099 603,256
Torchmark Corp..................... 1,872 82,274
Unum Group......................... 7,189 140,329
XL Capital Ltd..................... 7,900 144,807
5,306,175
INTERNET & CATALOG RETAIL -- 0.6%
Amazon.com, Inc.................... 7,400 995,448 /(a)/
Expedia, Inc....................... 4,700 120,837 /(a)/
priceline.com Inc.................. 970 211,945 /(a)/
1,328,230
NUMBER
OF SHARES VALUE
INTERNET SOFTWARE & SERVICES -- 2.0%
Akamai Technologies, Inc................ 3,800 $ 96,254 /(a)/
eBay Inc................................ 25,000 588,500 /(a)/
Google Inc. (Class A)................... 5,349 3,316,273 /(a)/
VeriSign, Inc........................... 4,062 98,463 /(a)/
Yahoo! Inc.............................. 26,589 446,163 /(a)/
4,545,653
IT SERVICES -- 1.6%
Affiliated Computer Services, Inc.
(Class A).............................. 2,200 131,318 /(a)/
Automatic Data Processing, Inc.......... 11,080 474,446
Cognizant Technology Solutions Corp.
(Class A).............................. 6,500 294,450 /(a)/
Computer Sciences Corp.................. 3,382 194,566 /(a)/
Fidelity National Information Services,
Inc.................................... 7,300 171,112
Fiserv, Inc............................. 3,478 168,613 /(a)/
Mastercard Inc. (Class A)............... 2,100 537,558
Paychex, Inc............................ 7,125 218,310
SAIC, Inc............................... 6,800 128,792 /(a)/
The Western Union Co.................... 15,424 290,742
Total System Services, Inc.............. 4,402 76,023
Visa, Inc. (Class A).................... 10,000 874,600
3,560,530
LEISURE EQUIPMENT & PRODUCTS -- 0.1%
Eastman Kodak Co........................ 6,475 27,324
Hasbro, Inc............................. 2,596 83,228
Mattel, Inc............................. 7,951 158,861
269,413
LIFE SCIENCES TOOLS & SERVICES -- 0.4%
Life Technologies Corp.................. 3,903 203,854 /(a)/
Millipore Corp.......................... 1,245 90,076 /(a)/
PerkinElmer, Inc........................ 2,310 47,563
Thermo Fisher Scientific, Inc........... 9,128 435,314 /(a)/
Waters Corp............................. 2,100 130,116 /(a)/
906,923
MACHINERY -- 1.6%
Caterpillar Inc......................... 13,832 788,286
Cummins Inc............................. 4,456 204,352
Danaher Corp............................ 5,800 436,160
Deere & Co.............................. 9,440 510,610
Dover Corp.............................. 4,158 173,014
Eaton Corp.............................. 3,700 235,394
Flowserve Corp.......................... 1,200 113,436
Illinois Tool Works Inc................. 8,527 409,211
PACCAR Inc.............................. 8,103 293,896
Pall Corp............................... 2,478 89,704
Parker Hannifin Corp.................... 3,572 192,459
Snap-On Inc............................. 1,309 55,318
The Stanley Works....................... 1,726 88,906
3,590,746
See Notes to Schedule of Investments on page 12 and Notes to Financial
Statements on page 17.
8
S&P 500 INDEX FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
NUMBER
OF SHARES VALUE
MEDIA -- 2.8%
CBS Corp. (Class B).................. 15,009 $ 210,876
Comcast Corp. (Class A).............. 63,458 1,069,902
DIRECTV (Class A).................... 21,100 703,685 /(a)/
Gannett Company Inc.................. 5,608 83,279
Interpublic Group of Companies, Inc.. 11,330 83,615 /(a)/
Meredith Corp........................ 598 18,448
News Corp. (Class A)................. 50,100 685,869
Omnicom Group Inc.................... 6,780 265,437
Scripps Networks Interactive, Inc.
(Class A)........................... 1,900 78,850
The McGraw-Hill Companies, Inc....... 7,021 235,274
The New York Times Co. (Class A)..... 2,788 34,460
The Walt Disney Co................... 41,520 1,339,020
The Washington Post Co. (Class B).... 140 61,544
Time Warner Cable Inc................ 7,696 318,537
Time Warner Inc...................... 25,938 755,833
Viacom, Inc. (Class B)............... 13,513 401,741 /(a)/
6,346,370
METALS & MINING -- 1.1%
AK Steel Holding Corp................ 2,300 49,105
Alcoa Inc............................ 21,640 348,837 /(d)/
Allegheny Technologies Inc........... 2,151 96,300
Cliffs Natural Resources Inc......... 2,900 133,661
Freeport-McMoRan Copper & Gold Inc... 9,555 767,171 /(a)/
Newmont Mining Corp.................. 10,828 512,273
Nucor Corp........................... 6,836 318,899
Titanium Metals Corp................. 1,600 20,032
United States Steel Corp............. 2,965 163,431
2,409,709
MULTILINE RETAIL -- 0.8%
Big Lots, Inc........................ 1,800 52,164 /(a)/
Family Dollar Stores, Inc............ 3,000 83,490
JC Penney Company Inc................ 5,287 140,687
Kohl's Corp.......................... 6,800 366,724 /(a)/
Macy's, Inc.......................... 9,030 151,343
Nordstrom, Inc....................... 3,792 142,503
Sears Holdings Corp.................. 1,119 93,381 /(a)/
Target Corp.......................... 16,749 810,149
1,840,441
MULTI-UTILITIES -- 1.4%
Ameren Corp.......................... 5,042 140,924
Centerpoint Energy, Inc.............. 8,618 125,047
CMS Energy Corp...................... 4,700 73,602
Consolidated Edison, Inc............. 6,207 281,984
Dominion Resources, Inc.............. 13,200 513,744
DTE Energy Co........................ 3,766 164,160
Integrys Energy Group, Inc........... 1,831 76,884
NiSource Inc......................... 5,815 89,435
PG&E Corp............................ 8,254 368,541
Public Service Enterprise Group Inc.. 11,292 375,459
SCANA Corp........................... 2,400 90,432
Sempra Energy........................ 5,375 300,892
TECO Energy, Inc..................... 4,400 71,368
NUMBER
OF SHARES VALUE
Wisconsin Energy Corp................ 2,700 $ 134,541
Xcel Energy, Inc..................... 10,180 216,020
3,023,033
OFFICE ELECTRONICS -- 0.1%
Xerox Corp........................... 18,890 159,809
OIL, GAS & CONSUMABLE FUELS -- 9.5%
Anadarko Petroleum Corp.............. 10,856 677,632
Apache Corp.......................... 7,448 768,410
Cabot Oil & Gas Corp................. 2,300 100,257
Chesapeake Energy Corp............... 14,100 364,908
Chevron Corp......................... 44,458 3,422,821
ConocoPhillips....................... 32,819 1,676,066
Consol Energy Inc.................... 4,100 204,180
Denbury Resources, Inc............... 5,600 82,880 /(a)/
Devon Energy Corp.................... 9,892 727,062
El Paso Corp......................... 15,182 149,239
EOG Resources, Inc................... 5,600 544,880
Exxon Mobil Corp..................... 105,360 7,184,498 /(d)/
Hess Corp............................ 6,470 391,435 /(d)/
Marathon Oil Corp.................... 15,742 491,465
Massey Energy Co..................... 1,800 75,618
Murphy Oil Corp...................... 4,300 233,060
Noble Energy, Inc.................... 3,900 277,758
Occidental Petroleum Corp............ 17,979 1,462,592
Peabody Energy Corp.................. 5,779 261,269
Pioneer Natural Resources Co......... 2,600 125,242
Range Resources Corp................. 3,500 174,475
Southwestern Energy Co............... 7,500 361,500 /(a)/
Spectra Energy Corp.................. 14,077 288,719
Sunoco, Inc.......................... 2,376 62,014
Tesoro Corp.......................... 3,300 44,715
The Williams Companies Inc........... 12,986 273,745
Valero Energy Corp................... 12,500 209,375
XTO Energy Inc....................... 12,841 597,492
21,233,307
PAPER & FOREST PRODUCTS -- 0.3%
International Paper Co............... 9,575 256,419
MeadWestvaco Corp.................... 3,800 108,794
Weyerhaeuser Co...................... 4,766 205,605
570,818
PERSONAL PRODUCTS -- 0.3%
Avon Products, Inc................... 9,528 300,132
Mead Johnson Nutrition Co. (Class A). 4,551 198,879 /(a)/
The Estee Lauder Companies Inc.
(Class A)........................... 2,600 125,736
624,747
PHARMACEUTICALS -- 6.3%
Abbott Laboratories.................. 34,404 1,857,472 /(d)/
Allergan, Inc........................ 6,755 425,633
Bristol-Myers Squibb Co.............. 37,718 952,380 /(d)/
Eli Lilly & Co....................... 22,543 805,011
Forest Laboratories, Inc............. 6,500 208,715 /(a)/
See Notes to Schedule of Investments on page 12 and Notes to Financial
Statements on page 17.
9
S&P 500 INDEX FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
NUMBER
OF SHARES VALUE
Johnson & Johnson................... 61,086 $ 3,934,549
King Pharmaceuticals, Inc........... 5,733 70,344 /(a)/
Merck & Company Inc................. 67,645 2,471,748
Mylan Inc........................... 6,765 124,679 /(a)/
Pfizer Inc.......................... 178,714 3,250,799
Watson Pharmaceuticals, Inc......... 2,300 91,103 /(a)/
14,192,433
PROFESSIONAL SERVICES -- 0.1%
Dun & Bradstreet Corp............... 1,200 101,244
Equifax Inc......................... 2,600 80,314
Monster Worldwide, Inc.............. 2,700 46,980 /(a)/
Robert Half International Inc....... 3,200 85,536
314,074
REAL ESTATE INVESTMENT TRUSTS (REIT'S) -- 1.2%
Apartment Investment &
Management Co. (Class A) (REIT).... 2,431 38,702
AvalonBay Communities, Inc.
(REIT)............................. 1,701 139,669
Boston Properties, Inc. (REIT)...... 3,100 207,917
Developers Diversified Realty Corp.
(REIT)............................. 290 2,685
Equity Residential (REIT)........... 6,100 206,058
HCP, Inc. (REIT).................... 6,500 198,510
Health Care REIT, Inc. (REIT)....... 2,600 115,232
Host Hotels & Resorts, Inc. (REIT).. 13,617 158,910
Kimco Realty Corp. (REIT)........... 7,600 102,828
Plum Creek Timber Company, Inc.
(REIT)............................. 3,500 132,160
ProLogis (REIT)..................... 9,900 135,531
Public Storage (REIT)............... 3,000 244,350
Simon Property Group, Inc. (REIT)... 6,237 497,713
Ventas, Inc. (REIT)................. 3,600 157,464
Vornado Realty Trust (REIT)......... 3,547 248,077
2,585,806
REAL ESTATE MANAGEMENT & DEVELOPMENT -- 0.0%*
CB Richard Ellis Group, Inc. (Class
A)................................. 5,500 74,635 /(a)/
ROAD & RAIL -- 1.0%
Burlington Northern Santa Fe
Corp............................... 5,774 569,432
CSX Corp............................ 8,539 414,056
Norfolk Southern Corp............... 8,118 425,546
Ryder System, Inc................... 1,331 54,797
Union Pacific Corp.................. 11,237 718,044
2,181,875
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 2.5%
Advanced Micro Devices, Inc......... 11,874 114,940 /(a,d)/
Altera Corp......................... 6,600 149,358
Analog Devices, Inc................. 6,500 205,270
Applied Materials, Inc.............. 29,700 414,018 /(d)/
Broadcom Corp. (Class A)............ 9,450 297,202 /(a)/
Intel Corp.......................... 122,765 2,504,406 /(d)/
Kla-Tencor Corp..................... 3,600 130,176
Linear Technology Corp.............. 4,800 146,592
LSI Corp............................ 14,692 88,299 /(a)/
NUMBER
OF SHARES VALUE
MEMC Electronic Materials, Inc.... 5,400 $ 73,548 /(a)/
Microchip Technology Inc.......... 3,900 113,334
Micron Technology, Inc............ 19,154 202,266 /(a)/
National Semiconductor Corp....... 4,566 70,134
Novellus Systems, Inc............. 2,200 51,348 /(a)/
Nvidia Corp....................... 12,300 229,764 /(a)/
Teradyne, Inc..................... 3,600 38,628 /(a)/
Texas Instruments Inc............. 27,851 725,797
Xilinx, Inc....................... 6,187 155,046
5,710,126
SOFTWARE -- 4.3%
Adobe Systems Inc................. 11,684 429,738 /(a,d)/
Autodesk, Inc..................... 5,148 130,811 /(a)/
BMC Software, Inc................. 4,100 164,410 /(a)/
CA, Inc........................... 8,700 195,402
Citrix Systems, Inc............... 3,900 162,279 /(a)/
Compuware Corp.................... 5,600 40,488 /(a)/
Electronic Arts, Inc.............. 7,300 129,575 /(a)/
Intuit, Inc....................... 7,000 214,970 /(a)/
McAfee, Inc....................... 3,600 146,052 /(a)/
Microsoft Corp.................... 171,139 5,218,028 /(d)/
Novell, Inc....................... 7,666 31,814 /(a)/
Oracle Corp....................... 86,952 2,133,802 /(d)/
Red Hat, Inc...................... 4,000 123,600 /(a)/
Salesforce.com, Inc............... 2,500 184,425 /(a)/
Symantec Corp..................... 17,985 321,752 /(a)/
9,627,146
SPECIALTY RETAIL -- 1.9%
Abercrombie & Fitch Co. (Class A). 2,100 73,185
AutoNation, Inc................... 1,886 36,117 /(a)/
AutoZone, Inc..................... 644 101,797 /(a)/
Bed Bath & Beyond, Inc............ 5,700 220,191 /(a)/
Best Buy Company Inc.............. 7,700 303,842
GameStop Corp. (Class A).......... 3,700 81,178 /(a)/
Home Depot, Inc................... 37,633 1,088,723
Lowe's Companies, Inc............. 32,702 764,900
Ltd Brands, Inc................... 5,688 109,437
Office Depot, Inc................. 5,400 34,830 /(a)/
O'Reilly Automotive, Inc.......... 3,000 114,360 /(a)/
RadioShack Corp................... 2,856 55,692
Ross Stores, Inc.................. 2,800 119,588
Staples, Inc...................... 16,150 397,129
The Gap Inc....................... 10,579 221,630
The Sherwin-Williams Co........... 2,163 133,349
Tiffany & Co...................... 2,700 116,100
TJX Companies, Inc................ 9,380 342,839
4,314,887
TEXTILES APPAREL & LUXURY GOODS -- 0.5%
Coach, Inc........................ 7,200 263,016
NIKE, Inc. (Class B).............. 8,710 575,470
Polo Ralph Lauren Corp. (Class A). 1,200 97,176
VF Corp........................... 2,002 146,626
1,082,288
See Notes to Schedule of Investments on page 12 and Notes to Financial
Statements on page 17.
10
S&P 500 INDEX FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
NUMBER
OF SHARES VALUE
THRIFTS & MORTGAGE FINANCE -- 0.1%
Hudson City Bancorp, Inc........... 10,600 $ 145,538
People's United Financial, Inc..... 7,800 130,260
275,798
TOBACCO -- 1.5%
Altria Group, Inc.................. 46,153 905,983
Lorillard, Inc..................... 3,611 289,711
Philip Morris International Inc.... 42,079 2,027,787
Reynolds American Inc.............. 3,800 201,286
3,424,767
TRADING COMPANIES & DISTRIBUTORS -- 0.1%
Fastenal Co........................ 3,000 124,920
WW Grainger, Inc................... 1,382 133,819
258,739
WIRELESS TELECOMMUNICATION SERVICES -- 0.3%
American Tower Corp. (Class A)..... 9,000 388,890 /(a)/
MetroPCS Communications, Inc....... 6,100 46,543 /(a)/
Sprint Nextel Corp. (Series 1)..... 64,100 234,606 /(a)/
670,039
TOTAL COMMON STOCK
(COST $220,587,282)............... 220,040,457
-------------------------------------------------------------------
OTHER INVESTMENTS -- 0.0%*
-------------------------------------------------------------------
GEI Investment Fund
(COST $105,952)................... 80,524 /(e)/
TOTAL INVESTMENTS IN SECURITIES
(COST $220,693,234)............... 220,120,981
-------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 1.6%
-------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 1.4%
GE Money Market Fund Institutional
Class 0.01%....................... 3,281,539 /(b,g)/
PRINCIPAL
AMOUNT VALUE
Money Market Obligation Trust
0.10% 12/31/30........... $ 478 $ 478 /(h)/
U.S. GOVERNMENT -- 0.2%
U.S. Treasury Bill
0.01% 11/03/10........... 400,000 399,987 /(b)/
TOTAL SHORT-TERM INVESTMENTS
(COST $3,681,998)............ 3,682,004
TOTAL INVESTMENTS
(COST $224,375,232).......... 223,802,985
OTHER ASSETS AND LIABILITIES,
NET -- 0.2%.................. 362,140
------------
NET ASSETS -- 100.0%.......... $224,165,125
============
------------------------------------------------------------
OTHER INFORMATION
------------------------------------------------------------
The GEI S&P 500 Fund Index had the following long futures contracts open at
December 31, 2009
NUMBER CURRENT
EXPIRATION OF NOTIONAL UNREALIZED
DESCRIPTION DATE CONTRACTS VALUE APPRECIATION
------------------------------------------------------------
S&P 500 Emini
Index Futures March 2010 82 $4,553,870 $55,161
See Notes to Schedule of Investments on page 12 and Notes to Financial
Statements on page 17.
11
Notes to Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
The views expressed in this document reflect our judgment as of the publication
date and are subject to change at any time without notice. The securities cited
may not represent current or future holdings and should not be considered as a
recommendation to purchase or sell a particular security. See the prospectus
for complete descriptions of investment objectives, policies, risks and
permissible investments.
(a)Non-income producing security.
(b)Coupon amount represents effective yield.
(c)State Street Corp. is the parent company of State Street Bank & Trust Co.,
the Fund's custodian and accounting agent.
(d)At December 31, 2009, all or a portion of this security was pledged to cover
collateral requirements for futures, options, forward foreign currency
contracts and/or TBA's.
(e)GE Asset Management Incorporated (GEAM) is the investment advisor of the
Fund and also serves as investment advisor of the GEI Investment Fund.
(f)General Electric Co. is the parent company of GEAM, the Fund's investment
Advisor.
(g)GEAM, the investment adviser of the Fund, also serves as investment adviser
of the GE Funds-GE Money Market Fund.
(h)Managed by SSgA Funds Management, Inc., the S&P 500 Index Fund's sub-adviser.
* Less than 0.1%.
+ Percentages are based on net assets as of December 31, 2009.
Abbreviations:
REIT Real Estate Investment Trust
TBA To be Announced
12
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
S&P 500 INDEX FUND
-------------------------------------------------------
12/31/09 12/31/08 12/31/07 12/31/06 12/31/05
-------- --------- -------- -------- --------
INCEPTION DATE -- -- -- -- 4/15/85
Net asset value, beginning of period....... $ 15.99 $ 26.52 $ 26.06 $ 22.94 $ 22.30
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income.................... 0.38 0.52 0.47 0.42 0.36
Net realized and unrealized
gains/(losses) on investments........... 3.84 (10.46) 0.86 3.12 0.65
- ---------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM
INVESTMENT OPERATIONS..................... 4.22 (9.94) 1.33 3.54 1.01
- ---------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.................... 0.39 0.50 0.47 0.42 0.37
Net realized gains....................... 0.00 0.09 0.40 -- --
- ---------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS........................ 0.39 0.59 0.87 0.42 0.37
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period............. $ 19.82 $ 15.99 $ 26.52 $ 26.06 $ 22.94
- ---------------------------------------------------------------------------------------------------
TOTAL RETURN /(A)/......................... 26.30% (37.40)% 5.10% 15.43% 4.51%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands). $224,165 $ 209,176 $447,426 $497,105 $531,015
Ratios to average net assets:
Net investment income.................. 2.05% 1.91% 1.62% 1.58% 1.47%
Expenses............................... 0.43%/(b)/ 0.41%/(b)/ 0.39% 0.40% 0.40%
Portfolio turnover rate................ 5% 4% 6% 4% 4%
NOTES TO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(a)Total returns are historical and assume changes in share price, reinvestment
of dividends and capital gains distributions and do not include the effect
of insurance contract charges.
(b)Reflects GEAM's waiver of a portion of the Fund's management fee in an
amount equal to the management fee earned by GEAM with respect to the Fund's
investment in the GE Funds - GE Money Market Fund. Excluding waiver, the
expense ratios would be unchanged.
See Notes to Financial Statements.
13
Statements of Assets S&P 500
and Liabilities DECEMBER 31, 2009 INDEX
FUND
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at market (cost $220,587,282)........ $220,040,457
Investments in affiliated securities, at market (cost $105,952). 80,524
Short-term Investments at market (cost $400,459)................ 400,465
Short-term affiliated investments (at amortized cost)........... 3,281,539
Receivable for investments sold................................. 506,359
Income receivables.............................................. 299,684
Receivable for fund shares sold................................. 24,779
- --------------------------------------------------------------------------------
TOTAL ASSETS.................................................. 224,633,807
- --------------------------------------------------------------------------------
LIABILITIES
Payable for fund shares redeemed................................ 180,418
Payable to GEAM................................................. 57,647
Accrued other expense........................................... 183,519
Variation margin payable........................................ 47,098
- --------------------------------------------------------------------------------
TOTAL LIABILITIES............................................. 468,682
- --------------------------------------------------------------------------------
NET ASSETS........................................................ $224,165,125
- --------------------------------------------------------------------------------
NET ASSETS CONSIST OF :
Capital paid in................................................. 277,403,729
Undistributed (distribution in excess of) net investment income. 1,556
Accumulated net realized gain (loss)............................ (52,723,074)
Net unrealized appreciation/ (depreciation) on:
Investments................................................... (572,247)
Futures....................................................... 55,161
- --------------------------------------------------------------------------------
NET ASSETS........................................................ $224,165,125
- --------------------------------------------------------------------------------
CLASS 1:
NET ASSETS........................................................ 224,165,125
Shares outstanding ($0.01 par value; unlimited shares authorized). 11,310,996
Net asset value per share......................................... 19.82
See Notes to Financial Statements.
14
Statements of Operations S & P 500
YEAR ENDED DECEMBER 31, 2009 INDEX
FUND
- ----------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend.............................................................. $ 4,775,819
Interest.............................................................. 241,968
Interest from affiliated investments.................................. 10,688
Foreign taxes withheld................................................ 224
- ----------------------------------------------------------------------------------------
TOTAL INCOME............................................................ 5,028,699
- ----------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees...................................... 715,146
Transfer agent........................................................ 44
Directors' fees....................................................... 4,873
Custody and accounting expenses....................................... 47,419
Professional fees..................................................... 40,616
Registration expenses................................................. 12,478
Other expenses........................................................ 58,528
- ----------------------------------------------------------------------------------------
TOTAL EXPENSES BEFORE WAIVER AND REIMBURSEMENT......................... 879,104
- ----------------------------------------------------------------------------------------
Less: Expenses reimbursed by the adviser.............................. (7,332)
- ----------------------------------------------------------------------------------------
Net expenses.......................................................... 871,772
- ----------------------------------------------------------------------------------------
NET INVESTMENT INCOME................................................... 4,156,927
- ----------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments......................................................... (19,443,721)
Futures............................................................. 1,199,614
INCREASE (DECREASE) IN UNREALIZED APPRECIATION / (DEPRECIATION) ON:
Investments......................................................... 62,008,026
Futures............................................................. (64,943)
Foreign currency transactions....................................... 209
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain on investments....................... 43,699,185
- ----------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................... $ 47,856,112
- ----------------------------------------------------------------------------------------
See Notes to Financial Statements.
15
Statements of S&P 500
Changes in Net Assets INDEX
FUND
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2009 2008
- -----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income................................................................ $ 4,156,927 $ 6,554,179
Net realized (loss) on investments, futures and foreign currency transactions......... (18,244,107) (26,812,058)
Net increase (decrease) in unrealized appreciation / (depreciation) on investments,
futures and foreign currency transactions........................................... 61,943,292 (134,714,212)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations............................................... 47,856,112 (154,972,091)
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................................................. (4,356,429) (6,315,180)
Net realized gains.................................................................... -- (1,148,328)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS..................................................................... (4,356,429) (7,463,508)
- -----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions..................... 43,499,683 (162,435,599)
- -----------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares.......................................................... 3,626,812 7,168,562
Value of distributions reinvested..................................................... 4,356,429 7,463,508
Cost of shares redeemed............................................................... (36,493,594) (90,446,405)
- -----------------------------------------------------------------------------------------------------------------------
Net (decrease) from share transactions................................................ (28,510,353) (75,814,335)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS................................................. 14,989,330 (238,249,934)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of period................................................................... 209,175,795 447,425,729
- -----------------------------------------------------------------------------------------------------------------------
End of period......................................................................... $224,165,125 $ 209,175,795
- -----------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF)
NET INVESTMENT INCOME, END OF PERIOD $ 1,556 $ 210,811
- -----------------------------------------------------------------------------------------------------------------------
CHANGE IN FUND SHARES
Shares sold............................................................................... 230,073 343,939
Issued for distributions reinvested....................................................... 217,713 473,269
Shares redeemed........................................................................... (2,212,725) (4,612,561)
- -----------------------------------------------------------------------------------------------------------------------
Net (decrease) in fund shares............................................................. (1,764,939) (3,795,353)
- -----------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
16
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
1. ORGANIZATION OF THE COMPANY
GE Investments Funds, Inc. (the "Company") was incorporated under the laws of
the Commonwealth of Virginia on May 14, 1984 and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Company is composed of fourteen investment
portfolios (collectively the "Funds"), although only the following eleven are
currently being offered: U.S. Equity Fund, S&P 500 Index Fund (the "Fund"),
Premier Growth Equity Fund, Core Value Equity Fund, Mid-Cap Equity Fund,
Small-Cap Equity Fund, International Equity Fund, Total Return Fund, Income
Fund, Money Market Fund and Real Estate Securities Fund.
Shares of the Funds of the Company are offered only to insurance company
separate accounts that fund certain variable life insurance contracts and
variable annuity contracts. These insurance companies may include insurance
companies affiliated with GE Asset Management Incorporated ("GEAM"), the
investment adviser and administrator of each of the Funds.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results may differ from
those estimates.
ACCOUNTING CHANGES
The Financial Accounting Standards Board (FASB) issued FASB Accounting
Standards Codification (ASC) effective for financial statements issued for
interim and annual periods ending after September 15, 2009. The ASC is an
aggregation of previously issued authoritative U.S. generally accepted
accounting principles (GAAP) in one comprehensive set of guidance organized by
subject area. In accordance with the ASC, references to previously issued
accounting standards have been replaced by ASC references. Subsequent revisions
to GAAP will be incorporated into the ASC through Accounting Standards Updates
(ASU).
SUBSEQUENT EVENTS
Subsequent events after the balance sheet date through the date that the
financial statements were issued, have been evaluated in the preparation of the
Financial Statement.
The following summarizes the significant accounting policies of the Fund:
SECURITY VALUATION AND TRANSACTIONS
The Fund's portfolio securities are valued generally on the basis of market
quotations. Equity securities generally are valued at the last reported sales
price on the primary market in which they are traded. Portfolio securities
listed on NASDAQ are valued using the NASDAQ Official Closing Price, which may
not necessarily represent the last sale price. If no sales occurred on the
exchange or NASDAQ that day, the portfolio security generally is valued using
the last reported bid price.
Debt securities (other than short-term securities described below) generally
are valued at an evaluated bid as reported by an independent pricing service.
Values obtained from pricing services are based on recent trading activity and
other relevant information which may include market interest rate curves,
referenced credit spreads and estimated prepayment rates where applicable. In
the absence of a reliable price from such a pricing service, debt securities
may be valued based on dealer supplied valuations or quotations. The Fund's
written or purchased options are valued at the last sales price, or if no sales
occurred that day, at the last reported bid price. Short-term investments of
sufficient credit quality with remaining maturities of sixty days or less at
the time of purchase are valued on the basis of amortized cost, which
approximates market value.
All assets and liabilities of the Fund that are initially expressed in foreign
currency values will be converted into U.S. dollars at the WM/Reuters exchange
rate computed at 11:00 a.m., Eastern time.
If prices are not readily available for a portfolio security, or if it is
believed that a price for a portfolio security does not represent its fair
value, the security may be valued using procedures approved by the Fund's Board
of Directors that are designed to establish its "fair" value.
Foreign securities may be valued with the assistance of an independent fair
value pricing service in circumstances where it is believed that they have been
or would be materially affected by events occurring after the close of
17
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
the portfolio security's primary market and before the close of regular trading
on the NYSE. This independent fair value pricing service uses a computerized
system to appraise affected securities and portfolios taking into consideration
various factors and the fair value of such securities may be something other
than the last available quotation or other market price.
GEAM may also separately monitor portfolio securities and, consistent with the
Fund's fair value procedures, apply a different value to a portfolio security
than would be applied had it been priced using market quotations or by an
independent fair value pricing service.
Determining the fair value of securities involves the application of both
subjective and objective considerations. Security values may differ depending
on the methodology used to determine their values, and may differ from the last
quoted sale or closing price. No assurance can be given that use of these fair
value procedures will always better represent the price at which the Fund could
sell the affected portfolio security.
Security transactions are accounted for as of the trade date. Realized gains
and losses on investments sold are recorded on the basis of identified cost for
both financial statement and federal tax purposes.
FAIR VALUE MEASUREMENTS
The Fund adopted ASC 820, Fair Valuation Measurements and Disclosures effective
January 1, 2008. This guidance establishes a new framework for measuring fair
value and expands related disclosures. Broadly, the framework requires fair
value to be determined based on the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction
between market participants. It also establishes a three-level valuation
hierarchy based upon observable and non-observable inputs.
For financial assets and liabilities, fair value is the price the Fund would
receive to sell an asset or pay to transfer a liability in an orderly
transaction with a market participant at the measurement date. In the absence
of active markets for the identical assets or liabilities, such measurements
involve developing assumptions based on market observable data and, in the
absence of such data, internal information that is consistent with what market
participants would use in a hypothetical transaction that occurs at the
measurement date.
Observable inputs reflect market data obtained from independent sources, while
unobservable inputs reflect our market assumptions. Preference is given to
observable inputs. These two types of inputs create the following fair value
hierarchy:
Level 1 -- Quoted prices for identical investments in active markets.
Level 2 -- Quoted prices for similar investments in active markets; quoted
prices for identical or similar investments in markets that are not active;
and model-derived valuations whose inputs are observable or whose
significant value drivers are observable.
Level 3 -- Significant inputs to the valuation model are unobservable.
Policies and procedures are maintained to value investments using the best and
most relevant data available. In addition, GEAM performs periodic reviews of
the methodologies used by independent pricing services including price
validation of individual securities.
The following section describes the valuation methodologies the Fund uses to
measure different financial investments at fair value.
When available, the Fund uses quoted market prices to determine the fair value
of investment securities, and they are included in Level 1. Level 1 securities
primarily include publicly-traded equity securities.
When quoted market prices are unobservable, pricing information is obtained
from an independent pricing vendor. The pricing vendor uses various pricing
models for each asset class that are consistent with what other market
participants would use. The inputs and assumptions to the model of the pricing
vendor are derived from market observable sources including: benchmark yields,
reported trades, broker/dealer quotes, issuer spreads, benchmark securities,
bids, offers, and other market-related data. Since many fixed income securities
do not trade on a daily basis, the methodology of the pricing vendor uses
available information as applicable such as benchmark curves, benchmarking of
like securities, sector groupings, and matrix pricing. The pricing vendor
considers all available market observable inputs in determining the evaluation
for a security. Thus, certain securities may not be priced using quoted prices,
but rather determined from market observable information. These investments are
included in Level 2 and primarily comprise our portfolio of corporate
18
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
fixed income, and government, mortgage and asset-backed securities. In
infrequent circumstances, pricing vendors may provide the Fund with valuations
that are based on significant unobservable inputs, and in those circumstances
the investment securities are included in Level 3.
The Fund uses non-binding broker quotes as the primary basis for valuation when
there is limited, or no, relevant market activity for a specific investment or
for other investments that share similar characteristics. The Fund has not
adjusted the prices obtained. Investment securities priced using non-binding
broker quotes are included in Level 3. As is the case with the primary pricing
vendor, third-party brokers do not provide access to their proprietary
valuation models, inputs and assumptions. Accordingly, GEAM conducts internal
reviews of pricing for all such investment securities periodically to ensure
reasonableness of valuations used in our financial statements. These reviews
are designed to identify prices that appear stale, those that have changed
significantly from prior valuations, and other anomalies that may indicate that
a price may not be accurate. Based on the information available, the Fund
believes that the fair values provided by the brokers are representative of
prices that would be received to sell the assets at the measurement date (exit
prices).
Other financial investments are derivative investments that are not reflected
in Total Investments, such as futures, forwards, swaps, and written options
contracts, which are valued based on the unrealized appreciation/depreciation
of the instrument.
The Fund uses closing prices for derivatives included in Level 1, which are
traded either on exchanges or liquid over-the counter markets. Derivative
assets and liabilities included in Level 2 primarily represent interest rate
swaps, cross-currency swaps and foreign currency and commodity forward and
option contracts. Derivative assets and liabilities included in Level 3
primarily represent interest rate products that contain embedded optionality or
prepayment features.
In January 2010, FASB issued ASU 2010-06, Improving Disclosures about Fair
Value Measurements. ASU 2010-06 will require reporting entities to make new
disclosures about the amounts and reasons for significant transfers in and out
of Level 1 and Level 2 fair value measurements and inputs and valuation
techniques used to measure fair value for both recurring and nonrecurring fair
value measurements that fall in either Level 2 or Level 3, and information on
purchases, sales, issuances, and settlements in the roll forward of activity in
Level 3 fair value measures. The new disclosures are effective for interim and
annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements. Those disclosures are
effect for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. GEAM does not believe the adoption of ASU
2010-06 will materially impact the financial statement amounts.
The following tables present the funds' investments measured at fair value on a
recurring basis at December 31, 2009:
Level 1 Level 2 Level 3 Total
------------------------------------------------------------------------
Investments in Securities+ $223,321,996 $480,989 $-- $223,802,985
Other Financial Instruments+ 55,161 -- -- 55,161
+See Statement of Investments for Industry Classification
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities. For example, money
market securities are valued using amortized cost, in accordance with the
Investment Company Act of 1940. Generally, amortized cost reflects the current
fair value of a security, but since the value is not obtained from a quoted
price in an active market, such securities are reflected as Level 2. Fair value
determinations are required for securities whose value is affected by a
significant event that will materially affect the value of a domestic or
foreign security and which occurs subsequent to the time of the close of the
principal market on which such domestic or foreign security trades but prior to
the calculation of the Fund's NAV.
REPURCHASE AGREEMENTS The Fund may engage in repurchase agreement transactions
with respect to instruments that are consistent with the Fund's investment
objectives or policies. The Fund's custodian or a third party custodian takes
possession of the collateral pledged for investments in repurchase agreements
on behalf of the
19
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
Fund. The Fund values the underlying collateral daily on a mark-to-market basis
to determine that the value, including accrued interest, is at least equal to
102% of the repurchase price. In the event the seller defaults and the value of
the security declines, or if the seller enters an insolvency proceeding,
realization of the collateral by the Fund may be delayed or limited.
SECURITY LENDING The Fund may loan securities to brokers, dealers, and
financial institutions determined by GEAM to be creditworthy, subject to
certain limitations. The Fund continues to receive the interest and dividends
on the loaned securities during the term of the loan. The loans of securities
are secured by collateral in the form of cash or other liquid assets, which are
segregated and maintained with the custodian in an amount at least equal to
102% of the current market value of the loaned securities. During the term of
the loan, the Fund will record any gain or loss in the market value of its
loaned securities and of securities in which cash collateral is invested. The
Fund will also earn interest, net of any rebate, from securities in which cash
collateral is invested. In the event the counterparty (borrower) does not meet
its contracted obligation to return the securities, the Fund may be exposed to
the risk of loss of reacquiring the loaned securities at prevailing market
prices using the proceeds of the sale of the collateral.
FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the prevailing rates of exchange
on a daily basis (on days the New York Stock Exchange is open). Purchases and
sales of securities, income receipts and expense payments denominated in
foreign currencies are translated into U.S. dollars at the prevailing exchange
rate on the respective dates of such transactions.
The Fund does not isolate the portion of the results of operations resulting
from changes in foreign exchange rates of foreign denominated securities from
the fluctuations arising from changes in the market prices of those securities
during the period. Such fluctuations are included in the net realized or
unrealized gain or loss from investments. Net realized gains or losses on
foreign currency transactions represent net gains or losses on sales and
maturities of foreign currency contracts, disposition of foreign currencies,
the difference between the amount of net investment income and withholding
taxes accrued and the U.S. dollar amount actually received or paid, and gains
or losses between the trade and settlement date on purchases and sales of
securities. Net unrealized foreign exchange gains and losses arising from
changes in the value of other assets and liabilities as a result of changes in
foreign exchange rates are included as increases or decreases in unrealized
appreciation/depreciation on foreign currency related transactions.
FUTURES CONTRACTS The Fund may invest in interest rate, financial or stock or
bond index futures contracts subject to certain limitations. The Fund may
invest in futures contracts to manage its exposure to the stock and bond
markets and fluctuations in currency values. Buying futures tends to increase
the Fund's exposure to the underlying instrument while selling futures tends to
decrease the Fund's exposure to the underlying instrument, or hedge other Fund
investments. The Fund will not enter into a transaction involving futures for
speculative purposes. The Fund's risks in using these contracts include changes
in the value of the underlying instruments, non-performance of the
counterparties under the contracts' terms and changes in the liquidity of the
secondary market for the contracts. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange on
which they principally trade.
Upon entering into a futures contract, the Fund is required to pledge to the
broker an amount of cash and/or other assets equal to a certain percentage of
the contract amount, known as initial margin deposit. Subsequent payments,
known as variation margin, are made or received by the Fund each day, depending
on the daily fluctuation in the fair value of the underlying security. The Fund
records an unrealized gain or loss equal to the daily variation margin. Should
market conditions move unexpectedly, the Fund may not achieve the anticipated
benefits of the futures contracts and may incur a loss. The Fund recognizes a
realized gain or loss on the expiration or closing of a futures contract.
OPTIONS The Fund may purchase and write options, subject to certain
limitations. The Fund may invest in options contracts to manage its exposure to
the stock and bond markets and fluctuations in foreign currency values.
Writing puts and buying calls tend to increase the Fund's exposure to the
underlying instrument while buying puts and writing calls tend to decrease the
Fund's exposure to the underlying instrument, or hedge other Fund investments.
The Fund will not enter into a transaction involving options for speculative
purposes. The Fund's risks in using these contracts include changes in the
value of the underlying instruments, non-performance of the counterparties
under the contracts' terms and changes in
20
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
the liquidity of the secondary market for the contracts. Options are valued at
the last sale price, or if no sales occurred on that day, at the last quoted
bid price.
When the Fund writes an option, the amount of the premium received is recorded
as a liability and is subsequently adjusted to the current fair value of the
option written. Premiums received from writing options that expire unexercised
are treated by the Fund on the expiration date as realized gains from
investments. The difference between the premium and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium is less than the amount paid
for the closing purchase, as a realized loss. When an option is exercised, the
proceeds from the sale of the underlying security or the cost basis of the
securities purchased is adjusted by the original premium received or paid.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for
federal income tax purposes.
The Fund is subject to ASC 740, Income Taxes. ASC 740 provides guidance for
financial accounting and reporting for the effects of income taxes that result
from an entity's activities during the year. ASC 740 also provides guidance
regarding how certain uncertain tax positions should be recognized, measured,
presented and disclosed in the financial statements. ASC 740 requires
evaluation of tax positions taken or expected to be taken in the course of
preparing the Funds' tax returns to determine whether the tax positions are
"more likely than not" of being sustained by the applicable tax authority.
There are no adjustments to the Funds' net assets required under ASC 740. The
Funds' 2006, 2007, 2008 and 2009 fiscal years tax returns are still open to
examination by the Federal and applicable state tax authorities."
At December 31, 2009, information on the tax cost of investments is as follows:
Net Tax
Appreciation/ Undistributed
Net Tax (Depreciation) on Undistributed Long-Term
Cost of Gross Tax Gross Tax Appreciation/ Derivatives, Income/ Gains
Investments for Unrealized Unrealized (Depreciation) on Currency and (Accumulated (Accumulated
Tax Purposes Appreciation Depreciation Investments other Net Assets Ordinary Loss) Capital Loss)
- ----------------------------------------------------------------------------------------------------------------------------
$233,847,144 $48,417,474 $(58,461,633) $(10,044,159) $-- $1,556 $(41,819,428)
Cost of Post October
Investments for Losses (see
Tax Purposes Detail Below)
- -----------------------------------
$233,847,144 $(1,376,573)
As of December 31, 2009, the Fund has capital loss carryovers, as indicated
below.
Amount Expires
---------------------------------------------------
$21,852,323 12/31/2016
19,967,105 12/31/2017
During the year ended December 31, 2009, there were no capital loss carryover
expirations. Any net capital and currency losses incurred after October 31,
within the Fund's tax year, are deemed to arise on the first day of the Fund's
next tax year if the Fund so elects to defer such losses.
The Fund elected to defer losses incurred after October 31, 2009 as follows:
Capital Currency
---------------------------------------------------
$1,376,573 $--
21
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
The tax composition of distributions paid during the years ended December 31,
2009 and December 31, 2008 were as follows:
Ordinary Long-Term
Income Capital Gains Total
-----------------------------------------
2009 $4,356,429 $ -- $4,356,429
2008 6,315,180 1,148,328 7,463,508
DISTRIBUTIONS TO SHAREHOLDERS The Fund declares and pays dividends from net
investment income annually. The Fund declares and pays net realized capital
gains in excess of capital loss carryforwards distributions annually. The
character of income and gains to be distributed is determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences include (but are not limited to) futures,
distributions from Real Estate Investment Trusts (REITS), and losses deferred
due to wash sale transactions. Reclassifications due to permanent book/tax
differences are made to the Fund's capital accounts to reflect income and gains
available for distribution (or available capital loss carryovers) under income
tax regulations. These reclassifications have no impact on net investment
income, realized gains or losses, or the net asset value of the Fund. The
calculation of net investment income per share in the Financial Highlights
table excludes these adjustments.
The reclassifications for the year ended December 31, 2009 were as follows:
Undistributed
(Distribution in Excess of) Accumulated
Net Investment Income Net Realized Gain Paid In Capital
--------------------------------------------------------------
$(9,753) $15,103 $(5,350)
INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on
the ex-dividend date, net of applicable withholding taxes, except for certain
foreign corporate actions, which are recorded as soon after ex-dividend date as
such information becomes available. Interest income is recorded on the accrual
basis. All discounts and premiums on bonds are accreted and amortized,
respectively, to call or maturity date, whichever is shorter, using the
effective yield method.
EXPENSES Fund specific expenses are allocated to the Fund that incurs such
expense and pro rata across share classes. Expenses, other than those incurred
by a specific Fund, are allocated pro rata among Funds and share classes. Such
expenses may include custodial fees, legal and accounting fees, printing costs
and registration fees. All expenses of the Fund are paid by GEAM and reimbursed
by the Fund. Certain class specific expenses (such as transfer agency fees or
distribution fees) are allocated to the class that incurs such expense.
DERIVATIVE INSTRUMENTS The Fund is subject to equity price risk and foreign
currency exchange rate risk in the normal course of pursuing their investment
objectives. The Fund entered into derivative transactions for the purpose of
hedging against the effects of changes in the value of portfolio securities due
to anticipated changes in market conditions and to gain market exposure for
residual and accumulating cash positions. A futures contract represents a
commitment for the future purchase or sale of an asset at a specified price on
a specified date. Upon entering into such contracts, the Fund is required to
deposit with the broker, either in cash or securities, an initial margin in an
amount equal to a certain percentage of the contract amount. Subsequent
payments (variation margin) are made or received by the Fund each day,
depending on the daily fluctuations in the value of the contract, and are
recorded for financial statement purposes as unrealized gains or losses by the
Fund. Upon entering into such contracts, the Fund bears the risk of interest or
exchange rates or securities prices moving unexpectedly, in which case, the
Fund may not achieve the anticipated benefits of the futures contracts and may
realize a loss. With futures contracts, there is minimal counterparty credit
risk to the Fund since futures contracts are exchange traded and the exchange's
clearinghouse, as counterparty to all traded futures, guarantees the futures
against default.
22
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
Shown below are the derivative contracts entered into by the Fund, summarized
by primary risk exposure.
ASSET DERIVATIVES DECEMBER 31, 2009 LIABILITY DERIVATIVES DECEMBER 31, 2009
----------------------------------------------- ---------------------------------------
Derivatives not
accounted for as Location in Notional Location in Notional
hedging instruments the Statements Value/No. of the Statements Value/No. of
under FASB of Assets Contracts Fair of Assets and Contracts Fair
ASC 815 and Liabilities Long/(Short) Value Liabilities Long/(Short) Value
- ------------------------------------------------------------------------------------------------------------
Equity Contracts Receivables, Net Assets - 4,553,870/82 55,161* -- -- --
Unrealized Appreciation/
(Depreciation) on
Futures
- ------------------------------------------------------------------------------------------------------------
* Includes cumulative appreciation/depreciation of futures contracts as
reported in the Schedule of Investments and equity section of the Statement
of Assets and Liabilities. Only the current day's variation margin is
reported within the receivables and/or payables Statement of Assets and
Liabilities.
Shown below are the effects of derivative instruments on the Fund's Statements
of Operations, summarized by primary risk exposure.
Total Number of Change in Unrealized
Derivatives not accounted Location in the Futures/Options Realized Gain or Appreciation/(Depreciation)
for as hedging instruments Statements of Contracts (Loss) on Derivatives on Derivatives
under FASB ASC 815 Operations Purchased/(Sold) Recognized in Income Recognized in Income
- ----------------------------------------------------------------------------------------------------------------------------
Equity Contracts Net realized gain/(loss) on
futures, Increase/(decrease)
in unrealized appreciation/
(depreciation) on futures 373/(385) 1,199,614 (64,943)
- ----------------------------------------------------------------------------------------------------------------------------
3. AMOUNTS PAID TO AFFILIATES
GEAM, a registered investment adviser, was retained by the Company's Board of
Directors effective May 1, 1997 to act as investment adviser and administrator
of the Fund. GEAM's compensation for investment advisory and administrative
services is paid monthly based on the average daily net assets of the Fund at
an annualized rate of 0.35%.
GEAM waives a portion of the Fund's management fee in the amount equal to the
management fee earned by GEAM with respect to the Fund's investment in the GE
Funds - GE Money Market Fund.
GENPACT performs certain accounting and certain administration services not
provided by GEAM. For the period ending December 31, 2009, $3,246 was charged
to the Fund.
DIRECTORS' COMPENSATION The Fund pays no compensation to its directors who are
officers or employees of GEAM or its affiliates. Directors who are not such
officers or employees also serve in a similar capacity for other funds advised
by GEAM. Compensation paid to unaffiliated directors are reflected on the
Statement of Operations. These fees are allocated pro rata across all of the
mutual fund platforms and share classes served by the directors, including the
Fund, and are based upon the relative net assets of each fund within such
platforms. (For additional information about directors compensation please
refer to the Statement of Additional Information).
4. SUB-ADVISORY FEES
Pursuant to an investment sub-advisory agreement with GEAM, SSgA Funds
Management, Inc. ("SSgA") is the Sub-Adviser to the S&P 500 Index Fund. SSgA is
responsible for the day-to-day portfolio management of the assets of the Fund,
including the responsibility for making decisions to buy, sell or hold a
particular security, under the general supervision of GEAM and the Board.
For its services, GEAM pays SSgA monthly sub-advisory fees which are calculated
as a percentage of the average daily net assets of the Fund.
5. INVESTMENT TRANSACTIONS
PURCHASES AND SALES OF SECURITIES The cost of purchases and the proceeds from
sales of investments, other than short-term securities and options, for the
period ended December 31, 2009 were as follows:
U.S. Government Securities
-----------------------------------------------------
Purchases Sales
-----------------------------------------------------
$-- $--
Other Securities
-----------------------------------------------------
Purchases Sales
-----------------------------------------------------
$10,125,850 $37,673,696
23
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the S&P 500 Index Fund, a series of
GE Investments Funds, Inc., as of December 31, 2009, and the related statement
of operations for the year then ended, statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of December 31, 2009 by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
S&P 500 Index Fund as of December 31, 2009, the results of its operations,
changes in its net assets and financial highlights for each of the years
described above, in conformity with U.S. generally accepted accounting
principles.
/s/ KPMG LLP
Boston, Massachusetts
February 25, 2010
24
Advisory and Administrative Agreement Renewal (unaudited)
- ---------------------------------------------------------------
The Board of Directors of the GE Investments Funds, Inc. (the "Board"),
including the independent Board members, considered and all those that were
present unanimously approved the continuance of the Fund's Investment Advisory
and Administration Agreement with GE Asset Management Incorporated ("GEAM") and
the Investment Sub-Advisory Agreement with the Fund's sub-adviser, SSgA Funds
Management, Inc. ("SSgA"), at meetings held on December 4 and December 11, 2009.
In considering whether to approve the Fund's investment advisory and
sub-advisory agreements, the Board members considered and discussed a
substantial amount of information and analysis provided, at the Board's
request, by GEAM and SSgA. The Board members also considered detailed
information regarding performance and expenses of other investment companies,
including those with similar investment objectives and sizes, which was
prepared by independent third party providers, Lipper Analytical Services Inc.
("Lipper") and Morningstar, Inc. ("Morningstar"). The Board members reviewed
the fees charged by GEAM for other mutual funds that employ a similar
investment strategy as the Fund. The Board had the opportunity to ask questions
and request additional information in connection with its considerations.
Before approving the Fund's advisory and sub-advisory agreements, the Board
members reviewed the information provided with management of GEAM and with
independent legal counsel. The Board members also reviewed a memorandum
prepared by independent legal counsel discussing the legal standards for the
consideration of the proposed continuances. The independent Board members
discussed the proposed continuances in detail during a private session with
their independent legal counsel at which no representatives of GEAM or SSgA
were present. The independent Board members and their independent legal counsel
requested, and received and considered, additional information from GEAM
following these sessions.
In advance of the meetings, and in response to their request, the Board members
received from GEAM written responses to their inquiries, which included
substantial exhibits and other materials related to GEAM's business and the
services it provides to the Fund. Also in advance of the meetings, the Board
members received from SSgA a written response to a letter of inquiry prepared
by GEAM at the Board's request, which included substantial exhibits and other
materials related to the business of, and services provided by, SSgA. The Board
members took into account their multi-year experience as Board members and
particularly their consideration of these types of agreements in recent years.
The information was presented in a manner to facilitate comparison to prior
periods and to reflect certain enhancements. To focus their review, the Board
members asked GEAM management and SSgA, in their oral presentations, to
highlight material differences from the information presented in recent years.
During the meetings, the Board members had an opportunity to discuss this
information with GEAM managers, including senior executives, representatives
from the legal, compliance and finance departments, and investment personnel.
The Board members also had an opportunity to hear presentations by
representatives of SSgA. The Board members posed questions to these
representatives and engaged in substantive discussions with them concerning
each of their investment processes.
In reaching their determinations relating to continuance of the Fund's
investment advisory and sub-advisory agreements, the Board members considered
all factors that they deemed relevant, including the factors discussed below.
In their deliberations, the Board members did not identify any particular
information that was all-important or controlling, and each Board member may
have attributed different weights to the various factors. In particular, the
Board members focused on the following:
The Nature, Extent And Quality Of Services Provided.
The Board members reviewed the services provided by GEAM and SSgA, taking into
account their extensive past experiences with GEAM and SSgA. They focused on
the favorable attributes of GEAM, including (i) an investment philosophy
oriented toward long-term performance; (ii) effective processes used for
overseeing sub-advisers; (iii) effective processes used for providing Fund
administration, including controllership and compliance functions and oversight
of the performance of other companies that provide services to the Fund;
(iv) highly skilled professionals including analysts, research professionals,
traders and portfolio managers with a depth of experience involving the types
of Funds they oversee; (v) access to significant technological resources from
which the Fund may benefit; and (vi) a favorable history and reputation. The
Board members discussed with senior officers of GEAM the personnel changes
made, and proposed to be made, by GEAM. The Board members noted that the Fund
represents only a small portion of the assets
25
Advisory and Administrative Agreement Renewal (unaudited)
- ---------------------------------------------------------------
managed by GEAM, but benefits from a full array of services and resources
provided by GEAM.
In connection with their consideration of the services provided by SSgA, the
Board members focused on SSgA's favorable attributes, including its substantial
experience managing funds of this type, investment philosophy and discipline,
high caliber investment and trading personnel, systems and other resources, and
favorable history and reputation.
In light of the foregoing, the Board, including the independent Board members,
concluded that the services provided by GEAM and SSgA continue to be
satisfactory.
Investment Performance Of The Fund And The Sub-Adviser.
The Board members considered the investment performance of the Fund for various
periods. The Board members reviewed detailed comparisons of the performance of
the Fund with the relevant securities indices and peer groupings of mutual
funds prepared by Lipper and Morningstar with respect to various periods. The
Board members also engaged in detailed discussions with GEAM management and
representatives of SSgA about each of their investment processes and
performance results. These discussions focused on the Fund's investment
objective, the number and experience of portfolio management, the passive
investment style and approach employed and the likely market cycles for the
investment style. The Board noted that the Fund's performance lagged its peer
group average because its expense ratio was somewhat greater than that of its
peer group average. The Board members discussed GEAM's investment approach with
respect to the Fund, and that the performance of the Fund is consistent with
GEAM's articulated long-term approach and overall investment philosophy.
The Board, including the independent Board members, concluded that the Fund's
performance was acceptable overall taking into consideration the factors
discussed above.
Cost Of The Services Provided And Profits Realized From The Relationship With
The Fund.
The Board members considered the fees paid to GEAM by the Fund, as well as
those paid to SSgA by GEAM, and the cost of the services provided by GEAM and
SSgA to the Fund. The Board members reviewed the information they had requested
from GEAM and SSgA concerning their profitability. The Board members considered
the profit margin information for GEAM's investment company business as a
whole, as well as GEAM's profitability data for the Fund. In this regard, the
Board members considered that GEAM has agreed to waive a portion of the fee it
charges to the Fund to the extent necessary to maintain a management fee of
0.30% of average daily net assets effective January 1, 2010 (this agreement is
set to expire on April 30, 2011). The Board members reviewed GEAM's assumptions
and the methods of cost allocation used by GEAM in preparing Fund-specific
profitability data. The Board members also discussed with GEAM the basis for
its belief that the methods of allocation used were reasonable for each area of
its business. The Board members reviewed the assumptions and cost allocation
methods used by SSgA in preparing its profitability data.
Information was presented regarding the financial condition of GEAM and SSgA
for various past periods. The Board members noted and discussed the additional
services provided by GEAM to the Fund compared to other investment products
managed by GEAM, and noted the fact that GEAM, and not the Fund, pays the
sub-advisory fees to SSgA. The Board members were provided a study conducted by
the Investment Company Institute that discusses and compares advisory fees and
services for mutual funds and institutional separate accounts. The Board
members determined that GEAM and SSgA should be entitled to earn a reasonable
level of profits for the services they provide to the Fund. The Board members
also recognized that GEAM had made significant investments in its business and
had not fully recovered the sums invested. The Board also considered that, in
the face of overall declining assets and revenues over the course of the past
year, GEAM continues to make a substantial investment in fulfilling its
obligations to the Fund and supporting its Fund-related activities.
Based on their review, the Board, including the independent Board members,
concluded that they were satisfied that the level of profitability achieved by
GEAM and SSgA from their relationship with the Fund was not unreasonable or
excessive.
The Extent To Which Economies Of Scale Would Be Realized As The Fund Grows And
Whether Fee Levels Would Reflect Such Economies Of Scale.
Although the Board noted that the Fund did not experience significant growth in
assets over the past year, the Board members considered the extent to which
economies of
26
Advisory and Administrative Agreement Renewal (unaudited)
- ---------------------------------------------------------------
scale would be realized as the Fund grows, and whether fee levels reflect these
economies of scale for the benefit of Fund investors.
The Board members considered the substantial infrastructure investments that
GEAM has made with respect to its operations and its commitment to continue
investing resources to enhance services to Fund shareholders. The Board members
recognized the benefits to the Fund of GEAM's past investment in its operations
through the expenditure of sums to support its substantial infrastructure, and
that, with respect to all GEAM managed mutual funds, GEAM has not yet fully
recouped that investment. The Board members also recognized the benefits to the
Fund of being able to leverage a favorable cost structure achieved with respect
to the Fund's other operating expenses as a result of GEAM's large overall base
of assets under management and its vendor management practices.
Comparison Of Services To Be Rendered And Fees To Be Paid.
The Board members discussed the services provided to the Fund by GEAM and SSgA,
and the fees charged for those services. The Board members reviewed information
concerning the fee and expense ratios for the Fund, and comparative information
with respect to similar products. They discussed that the Fund's figures were
within the applicable peer group range, although at the highest end of the
range, but also noted the anticipated effect of the management fee waiver
discussed above. The Board members also reviewed comparative fee information
with respect to any comparable mutual fund or other client accounts managed by
SSgA. The Board, including the independent Board members, concluded that, based
on this information, the advisory and sub-advisory fees were reasonable in
relation to the services provided to the Fund.
Fall-Out Benefits.
The Board members considered other actual and potential financial benefits that
GEAM and SSgA may derive from their respective relationships with the Fund,
including, to the extent applicable, soft dollar commission benefits generated
through Fund portfolio transactions. The Board members noted, however, that the
Fund benefits from the vast array of resources available through GEAM, and that
the Fund represents only a small portion of the assets managed by GEAM.
Conclusion.
No single factor was determinative to the Board's decision. Based on their
discussion and such other matters as were deemed relevant, the Board, including
the independent members, concluded that renewal of the advisory and
sub-advisory agreement were in the best interests of the shareholders of the
Fund.
27
Additional Information (unaudited)
- ---------------------------------------------------------------
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS:
The business and affairs of the Company are managed under the direction of the
Company's Board of Directors. Information pertaining to the Directors and
officers of the Company is set forth below.
INTERESTED DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
MICHAEL J. COSGROVE
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
POSITION(S) HELD WITH FUND Chairman of the Board and President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS President and Chief Executive
Officer - Mutual Funds and Intermediary Business since March 2007; Executive
Vice President of GEAM from February 1997 to March 2007; Director of GEAM since
1988; Vice President, GE Capital Corporation, an indirect wholly-owned
subsidiary of GE, since December 1999; Executive Vice President - Sales and
Marketing of GEAM, a wholly-owned subsidiary of GE that is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, from
March 1993 to March 2007.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 51
OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE
Funds since 1993, and GE Institutional Funds since its inception; Trustee of
General Electric Savings & Security Trust, General Electric S&S Income Fund,
General Electric S&S Program Mutual Fund ("GE Savings & Security Funds"), Elfun
Funds, General Electric Insurance Plan Trust, General Relief Loan Fund, and
General Electric Pension Trust since 1988; Trustee of Fordham University since
2002; Trustee of GE Volunteers since 1993; Director, GE Asset Management
(Ireland) since February 1999; Director, GE Asset Management Funds Plc., GE
Asset Canada Company, and GE Asset Management Limited since 1998.
- --------------------------------------------------------------------------------
MATTHEW J. SIMPSON
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 48
POSITION(S) HELD WITH FUND Director and Executive Vice President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 2 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President, General
Counsel and Secretary of GEAM since July 2007; Senior Vice President and
General Counsel - Marketing and Client Services (formerly Asset Management
Services), at GEAM and Senior Vice President and General Counsel of GEAMS from
February 1997 to June 2007; Vice President and Associate General Counsel of
GEAM from October 1992 to February 1997; Secretary of Fund from 1997 to June
2007; Vice President of Fund from September 2003 to June 2007; Vice President
of GE Institutional Funds from September 2003 to June 2007; Secretary of GE
Institutional Funds and GE LifeStyle Funds from 1997 to June 2007; Vice
President of Elfun Funds and GE Savings & Security Funds from October 2003 to
June 2007; Assistant Secretary of Elfun Funds and GE Savings & Security Funds
from 1998 to June 2007.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 51
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds, GE Institutional
Funds, Elfun Funds and GE Savings & Security Funds since July 2007.
28
Additional Information (unaudited)
- ---------------------------------------------------------------
- --------------------------------------------------------------------------------
SCOTT H. RHODES
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 49
POSITION(S) HELD WITH FUND Treasurer
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 3 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS GEAM Mutual Funds Operations
Manager since September 2005; Treasurer of GE Institutional Funds, GE LifeStyle
Funds and GE Investments Funds since November 2005 and Elfun Funds and GE
Savings & Security Funds since September 2005; from August 2004 to September
2005 Vice President, U.S. Trust Company, N.A. and Assistant Treasurer of
Excelsior Funds, Inc., Excelsior Funds Trust, and Excelsior Tax Exempt Funds,
Inc.; from January 2004 to August 2004, Vice President BlackRock Financial
Management, Inc.; from December 1996 to November 2003, Controller - Mutual
Funds, American Skandia Investment Services, Inc. and Assistant Treasurer of
American Skandia Trust and American Skandia Advisor Funds, Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
JEANNE M. LAPORTA
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 44
POSITION(S) HELD WITH FUND Vice President and Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 5 years (Vice President); 3 years (Secretary)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Senior Vice President and Deputy
General Counsel at GE Asset Management since October 2007; Vice President and
Associate General Counsel - Marketing and Client Services (formerly Asset
Management Services) at GEAM from May 1997 to October 2007; Vice President and
Assistant Secretary of GE Funds and GE Institutional Funds from September 2003
to July 2007; Vice President and Secretary of GE Funds and GE Institutional
Funds since July 2007; Vice President and Assistant Secretary of Elfun Funds
and GE Savings & Security Funds since October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
29
Additional Information (unaudited)
- ---------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 63
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS General Partner, NGN Capital LLC
since 2006; Managing Director, Vice President of Walden Capital Management
since 1996.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, GE
Institutional Funds since its inception; Trustee of Fordham University from
1989 to 1995 and 2001 to 2007 and Trustee Emeritus since 2007; Trustee of
NeuroScience Research Institute since 1986; Trustee of Gregorian University
Foundation from 1992 to 2007; Director of Artes medical from 2006 to 2008.
- --------------------------------------------------------------------------------
WILLIAM J. LUCAS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 62
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Treasurer of
Fairfield University since 1983.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds since its inception.
- --------------------------------------------------------------------------------
ROBERT P. QUINN
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 74
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon
Brothers Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds since its inception; Trustee, St. Francis Hospital Corp.
- --------------------------------------------------------------------------------
The Statement of Additional Information for the Fund includes additional
information about the Directors and Officers and is available, without charge,
upon request by calling 1-800-493-3042.
30
Investment Team
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
GE Asset Management Incorporated
BOARD OF DIRECTORS
Michael J. Cosgrove, Chairman
John R. Costantino
William J. Lucas
Robert P. Quinn
Matthew J. Simpson
SECRETARY
Jeanne M. LaPorta
ASSISTANT SECRETARIES
Joseph A. Carucci
Joon Won Choe
Kimberley Costello
Michelle Matzelle
TREASURER
Scott H. Rhodes
ASSISTANT TREASURERS
Scott R. Fuchs
Christopher M. Isaacs
DISTRIBUTOR
GE Investment Distributors, Inc.
Member FINRA and SIPC
COUNSEL
Sutherland, Asbill & Brennan, LLP
CUSTODIAN
State Street Bank & Trust Company
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
KPMG LLP
OFFICERS OF THE INVESTMENT ADVISER
James W. Ireland, President and Chief Executive Officer
Cheryl H. Beacock, Senior Vice President, Human Resources
Daniel O. Colao, Executive Vice President, Chief Financial Officer
Michael J. Cosgrove, President and Chief Executive Officer - Mutual Funds &
Intermediary Business
Paul M. Colonna, President and Chief Investment Officer - Fixed Income
Investments
Amiel Goldberg, Senior Vice President, Chief Risk Officer
Ralph R. Layman, President and Chief Investment Officer - Public Equity
Investments (since July 2009)
Maureen B. Mitchell, President - Institutional Sales and Marketing (since July
2009)
Matthew J. Simpson, Executive Vice President, General Counsel and Secretary
Judith A. Studer, Chief Market Strategist (since July 2009)
Don W. Torey, President - Alternative Investments
John J. Walker, Executive Vice President, Chief Operating Officer
David Wiederecht, President and Chief Investment Officer - Investment Strategies
31
Investment Adviser
GE Asset Management Incorporated
3001 Summer Street
PO Box 7900
Stamford, CT 06904-7900
Distributor
GE Investment Distributors, Inc.
member FINRA and SIPC
3001 Summer Street
PO Box 7900
Stamford, CT 06904-7900
The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission for the first and third quarters of each
fiscal year on Form N-Q. The Fund's Forms N-Q, as well as a description of
the policies and procedures that the Fund uses to determine how to vote
proxies (if any) relating to portfolio securities is available without
charge (i) upon request, by calling 1-800-493-3042; (ii) on the Fund's
website at http://www.geam.com; and (iii) on the Commission's website at
http://www.sec.gov. The Fund's Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC--information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to
portfolio securities during the most recently disclosed 12-month period
ended June 30 is available without charge (i) through the Fund's website at
http://www.geam.com; and (ii) on the Commission's website at
http://www.sec.gov.
[LOGO] GE
GE Investments Funds, Inc.
Total Return Fund
Annual Report
December 31, 2009
[LOGO] GE
GE Investments Funds, Inc.
Total Return Fund Contents
- ------------------------------------------------------------
NOTES TO PERFORMANCE.................................... 1
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS.............. 8
NOTES TO SCHEDULE OF INVESTMENTS........................ 25
FINANCIAL STATEMENTS
Financial Highlights................................. 26
Statement of Assets and Liabilities.................. 28
Statement of Operations.............................. 29
Statements of Changes in Net Assets.................. 30
Notes to Financial Statements........................ 32
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. 42
ADVISORY AND ADMINISTRATIVE AGREEMENT APPROVALS......... 43
ADDITIONAL INFORMATION.................................. 46
INVESTMENT TEAM......................................... 49
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
Notes to Performance December 31, 2009
- ---------------------------------------------------------------------
Information on the following performance pages relating to the GE Investments
Total Return Fund one year total return and Schedule of Investments is audited.
All other information, including the portfolio manager Q&A pages, is unaudited.
Total returns take into account changes in share price and assume reinvestment
of all dividends and capital gains distributions, if any. Total returns shown
are net of Fund expenses but do not reflect fees and charges associated with
the variable contracts such as administrative fees, account charges and
surrender charges, which, if reflected, would reduce the Fund's total returns
for all periods shown.
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be higher or lower than the performance
data quoted. Periods less than one year are not annualized. Please call
800-493-3042 or visit the Fund's website at http://www.geam.com for the most
recent month-end performance data.
An investment in a Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency. An investment in a Fund is subject to risk, including
possible loss of principal invested.
The Standard & Poor's ("S&P") 500(R) Composite Price Index of stocks (S&P 500
Index) and Barclays Captial U.S. Aggregate Bond Index (formerly Lehman Brothers
Aggregate Bond Index) are unmanaged indices and do not reflect the actual cost
of investing in the instruments that comprise each index.
The S&P 500 Index is an unmanaged, market capitalization-weighted index of
stocks of 500 large U.S. companies, which is widely used as a measure of
large-cap stock market performance. The Barclays Captial U.S. Aggregate Bond
Index is a market value-weighted index of taxable investment-grade debt issues,
including government, corporate, asset-backed and mortgage-backed securities,
with maturities of one year or more. This index is designed to represent the
performance of the U.S. investment-grade first rate bond market. The results
shown for the foregoing indices assume the reinvestment of net dividends or
interest.
The peer universe of the underlying annuity funds used in our peer group
average return calculation is based on the blend of Morningstar peer
categories, as shown. Morningstar is an independent mutual fund rating service.
A Fund's performance may be compared to or ranked within a universe of mutual
funds with investment objectives and policies similar but not necessarily
identical to the Fund's.
(C)2009 Morningstar, Inc. All Rights Reserved. The information contained
herein: (1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is no warranted to be accurate, complete
or timely. Neither Morningstar nor its content providers are responsible for
any damage or losses relating from any use of this information. Past
performance is no guarantee or future results.
- --------------
GE INVESTMENT DISTRIBUTORS, INC., MEMBER OF FINRA & SIPC, IS THE PRINCIPAL
UNDERWRITER AND DISTRIBUTOR OF THE GE INVESTMENT FUNDS, INC. AND A WHOLLY OWNED
SUBSIDIARY OF GE ASSET MANAGEMENT INCORPORATED, THE INVESTMENT ADVISER OF THE
FUND.
1
Total Return Fund
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[PHOTO] Paul M. Colonna
PAUL M. COLONNA
[PHOTO] Ralph R. Layman
RALPH R. LAYMAN
[PHOTO] Thomas R. Lincoln
THOMAS R. LINCOLN
[PHOTO] Judith A. Studer
JUDITH A. STUDER
[PHOTO] Diane M. Wehner
DIANE M. WEHNER
THE TOTAL RETURN FUND IS MANAGED BY A TEAM OF PORTFOLIO MANAGERS THAT INCLUDES
PAUL M. COLONNA, RALPH R. LAYMAN, THOMAS R. LINCOLN, JUDITH A. STUDER AND DIANE
M. WEHNER. MS. STUDER IS VESTED WITH OVERSIGHT AUTHORITY FOR DETERMINING ASSET
ALLOCATIONS FOR THE FUND, INCLUDING THE FULL DISCRETION TO ALLOCATE THE FUND'S
ASSETS TO SUB-ADVISER(S) RETAINED BY GE ASSET MANAGEMENT. EACH OF THE OTHER
PORTFOLIO MANAGERS IS RESPONSIBLE FOR MANAGING ONE OF THE FOLLOWING
SUB-PORTFOLIOS: U.S. EQUITY, U.S. MID-CAP EQUITY, INTERNATIONAL EQUITY AND
FIXED INCOME. MR. LINCOLN MANAGES THE U.S. EQUITY PORTION, MS. WEHNER MANAGES
THE U.S. MID-CAP EQUITY PORTION, MR. LAYMAN MANAGES THE INTERNATIONAL EQUITY
PORTION AND MR. COLONNA MANAGES THE FIXED INCOME PORTION, EACH WITH A TEAM OF
PORTFOLIO MANAGERS AND ANALYSTS. GE ASSET MANAGEMENT HAS ALSO RETAINED URDANG
SECURITIES MANAGEMENT, INC. ("URDANG") TO ACT AS SUB-ADVISER TO THAT PORTION OF
THE FUND'S ASSETS ALLOCATED BY MS. STUDER REAL ESTATE-RELATED INVESTMENTS. THE
SUB-PORTFOLIOS UNDERLYING THE FUND ARE MANAGED INDEPENDENTLY OF EACH OTHER AND
THE PORTFOLIO MANAGERS AND SUB-ADVISER(S) HAVE FULL DISCRETION OVER THEIR
PARTICULAR SUB-PORTFOLIO; HOWEVER, THE PORTFOLIO MANAGEMENT TEAM IS
COLLABORATIVE TO ENSURE STRICT ADHERENCE TO THE FUND'S OBJECTIVES. IN ADDITION
TO OVERSIGHT AUTHORITY FOR ASSET ALLOCATION, MS. STUDER MAY AT TIMES ADJUST THE
FUND'S INVESTMENT EXPOSURE THROUGH THE USE OF VARIOUS INVESTMENT TECHNIQUES
SUCH AS INVESTMENTS IN DERIVATIVE INSTRUMENTS.
PAUL M. COLONNA IS PRESIDENT AND CHIEF INVESTMENT OFFICER -- FIXED INCOME AND A
DIRECTOR AT GE ASSET MANAGEMENT. SINCE JANUARY 2005, HE HAS BEEN RESPONSIBLE
FOR THE FIXED INCOME PORTION OF THE TOTAL RETURN FUND. PRIOR TO JOINING GE
ASSET MANAGEMENT IN FEBRUARY 2000, MR. COLONNA WAS A SENIOR PORTFOLIO MANAGER
WITH THE FEDERAL HOME LOAN MORTGAGE CORPORATION, OVERSEEING THE MORTGAGE
INVESTMENT GROUP. MR. COLONNA BECAME PRESIDENT -- FIXED INCOME IN MARCH 2007.
RALPH R. LAYMAN IS PRESIDENT AND CHIEF INVESTMENT OFFICER -- PUBLIC EQUITIES
AND A DIRECTOR AT GE ASSET MANAGEMENT. HE MANAGES THE OVERALL PUBLIC EQUITY
INVESTMENTS FOR GE ASSET MANAGEMENT. MR. LAYMAN HAS BEEN RESPONSIBLE FOR THE
INTERNATIONAL EQUITY PORTION OF THE TOTAL RETURN FUND SINCE 1997. MR. LAYMAN
JOINED GE ASSET MANAGEMENT IN 1991 AS SENIOR VICE PRESIDENT FOR INTERNATIONAL
INVESTMENTS AND BECAME AN EXECUTIVE VICE PRESIDENT IN 1992, PRESIDENT --
INTERNATIONAL EQUITIES IN MARCH 2007 AND PRESIDENT -- PUBLIC EQUITIES SINCE
JULY 2009.
THOMAS R. LINCOLN IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS
BEEN A MEMBER OF THE PORTFOLIO MANAGEMENT TEAM FOR THE TOTAL RETURN FUND SINCE
MAY 2007. MR. LINCOLN JOINED GE ASSET MANAGEMENT IN 1994 AS A FINANCIAL ANALYST
IN U.S. EQUITIES. MR. LINCOLN BECAME PART OF THE INVESTMENT MANAGEMENT TEAM FOR
U.S. EQUITIES IN 1997 AND PORTFOLIO MANAGER FOR U.S. EQUITIES IN 2003.
JUDITH A. STUDER IS A DIRECTOR AND CHIEF MARKET STRATEGIST AT GE ASSET
MANAGEMENT. SHE HAS LED THE TEAM OF PORTFOLIO MANAGERS FOR THE TOTAL RETURN
FUND SINCE JULY 2004, AND HAS CO-LED THE FUND SINCE JANUARY 2009. MS. STUDER
JOINED GE ASSET MANAGEMENT IN AUGUST 1984. SHE BECAME SENIOR VICE PRESIDENT --
U.S. EQUITIES IN 1991, SENIOR VICE PRESIDENT -- INTERNATIONAL EQUITIES IN 1995,
PRESIDENT -- INVESTMENT STRATEGIES IN JULY 2006, PRESIDENT -- U.S. EQUITIES IN
JUNE 2007 AND CHIEF MARKET STRATEGIST SINCE JULY 2009.
DIANE M. WEHNER IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. SHE HAS BEEN
A PORTFOLIO MANAGER OF THE TOTAL RETURN FUND SINCE JANUARY 2006. BEFORE JOINING
GE ASSET MANAGEMENT, MS. WEHNER WAS A VICE PRESIDENT AND SENIOR PORTFOLIO
MANAGER FROM JANUARY 1997 TO JUNE 2001, AND ASSOCIATE PORTFOLIO MANAGER FROM
MAY 1995 TO JANUARY 1997, WITH BENEFIT CAPITAL MANAGEMENT CORPORATION.
MS. WEHNER HAS SERVED AS AN ANALYST/ PORTFOLIO MANAGER IN THE INVESTMENT
MANAGEMENT INDUSTRY SINCE 1985.
Q. HOW DID THE TOTAL RETURN FUND PERFORM COMPARED TO ITS BENCHMARK AND
MORNINGSTAR PEER GROUP FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2009?
A. For the twelve-month period ended December 31, 2009, the Total Return Fund
returned 20.81% for the Class 1 shares,
2
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[GRAPHIC]
20.76% for Class 2 shares, and 20.57% for Class 3 shares. The Fund's broad
based benchmarks, the S&P 500 Index and the Barclays Capital U.S. Aggregate
Bond Index, returned 26.46% and 5.93%, respectively. The Fund's Morningstar
peer group of 303 US Insurance Moderate Allocation funds returned an average
of 23.99% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE AND WHAT WERE THE PRIMARY
DRIVERS OF FUND PERFORMANCE?
A. The performance of the Total Return Fund for the twelve-month period ended
December 31, 2009 was primarily driven by the Fund's equity performance, its
underweight position in fixed income, and an overweight in cash. The Fund
benefited from the Tactical Asset Allocation Committee's decision to
opportunistically increase equity exposure by reducing cash throughout the
last six months of the period.
The U.S. equity markets fell sharply through early March against a backdrop
of severe global economic recession, falling home prices, and the prospect
of huge losses by global financial institutions. After the U.S. government
passed a $790 billion stimulus bill and the Federal Reserve announced plans
to pump $1.25 trillion into the economy, the S&P 500 rallied 67% through
year-end off its March 9 intraday low. In addition to the unprecedented
fiscal and monetary stimulus, stocks were supported by earnings reports in
the second and third quarter that generally beat expectations, a pick-up in
corporate acquisition activity, and strong free cash flow as companies cut
capital spending and reduced their cost structures. Despite this strong
snap-back, the S&P 500 still remained 29% below the high it reached in
October 2007.
Sector allocation has been important in this environment, as only the
technology (+62%), materials (+49%), and consumer discretionary (+42%)
sectors outperformed the S&P 500 in 2009 while the more defensive sectors
lagged. In this context, the growth style of investing outperformed the
value style, with the strongest returns coming from medium capitalization
companies. Careful stock selection was warranted in the financials sector,
which plummeted 29% in the first quarter but advanced a whopping 140% off of
March lows, reflecting relief that the sector would remain intact. This was
reinforced by the fact that most large U.S. banks passed their stress tests
and credit markets strengthened. By year-end, several large commercial and
investment banks had reimbursed the U.S. Treasury for the government TARP
investments. Going forward, we do not expect the markets to simply reward
survivorship with performance since earnings estimate achievability should
matter more prospectively.
Strong stock selection among energy companies was a key driver of U.S.
equity performance, despite the fact that the sector overall showed
lackluster performance. Good stock selection in financials was also
beneficial. One theme for these holdings was financial strength and the
ability to take market share and emerge from the recession as a stronger
competitor. A beneficial underweight in the defensive consumer staples
sector was another driver to performance, as this group underperformed the
market averages. Consumer discretionary and technology were the only two
sectors to detract from relative performance this year.
We continued to seek large-cap, high quality companies that we felt had the
potential to survive and grow market share during the down-cycle and in a
gradual recovery. We maintained a consistent emphasis on companies with
strong balance sheets and earnings stability, over more cyclical or
leveraged opportunities. We took advantage of relative underperformance in
high-quality brand-name companies, to add several new positions during the
year. We reduced our holdings in technology and several semiconductor
companies although technology remained the largest sector position within
U.S. equity. We took advantage of relative weakness in energy to boost our
exposure to that sector, which we believe faces tremendous long-term
supply-demand imbalances. At year-end, the largest U.S. equity overweights
were in technology, healthcare, and financials, and the largest underweights
were in consumer staples, industrials, and utilities.
Valuations for many companies remain attractive, even after the strong
rebound from March through year-end. While lower quality companies
outperformed during the rally, we believe any future market rally will be
dominated by outperformance by market share winners with strong balance
sheets and management teams. Amid rapidly changing market
3
Total Return Fund
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[GRAPHIC]
conditions we have maintained our bottom-up stock selection approach with
focus on a long-term investment horizon.
Mid-cap equities outperformed during this period, largely due to solid stock
selection within the information technology, financials, consumer staples,
and consumer discretionary sectors. The overweight in information
technology, the best performing sector during the year, was additive to
performance. The underweight in the underperforming financials sector was
also beneficial. While mid-cap equities benefited from sizable exposure to
the healthcare sector, which outperformed the market, performance of some
individual stocks suffered from company specific issues, which more than
offset the benefit of being exposed to this relatively defensive growth
industry. During the period we increased the mid-cap equity weighting in the
financials, consumer discretionary, and materials sectors, and we reduced
our exposure to consumer staples, and healthcare sectors. We are focused on
investing in attractively valued companies with strong balance sheets,
experienced management teams, solid earnings prospects, leading market
shares, and superior long-term fundamentals. With an emphasis on growth, we
continue to look to invest in innovative companies that provide prospects
for above-average earnings growth. Therefore, healthcare and information
technology companies represent a meaningful percentage of our holdings.
For the first ten weeks of the year, international equity markets fell at a
faster rate than experienced in 2008 as fears of systemic financial sector
failure drove sentiment. However, evidence that world governments were
prepared to use all available tools to prevent such a collapse and to
support the global economy prompted a refocus on valuations and
survivability. Massive cash on the sidelines supported a turnaround in
market sentiment while second and third quarter earnings beat modest
expectations. The fear of being short replaced the fear of being long and
bond yields offered little by way of competition to under-owned stocks.
Anecdotal evidence of restocking of depleted inventories and proof that
companies could still be profitable started the recovery. China and India
avoiding recession provided a destination for investment funds and markets
for companies with infrastructure goods and services to sell. As the year
progressed, purchasing manager surveys, confidence indicators, and GDP
forecasts all improved although in uneven fashion. The U.S. dollar weakened,
providing support for commodities and boosting emerging markets.
The bulk of the negative attribution came from holdings in financials, most
notably in Japan. Picked for their defensive qualities, Japan's banks and
other financials proved only too vulnerable to the weakness of the local
economy and market. Also, an underweight in cyclical discretionary stocks
and an overweight in defensive staples underperformed in the recovery.
Positive attribution came from holdings in energy boosted by higher prices,
telecom stocks for their defensive qualities, and utilities which was a
significant underweight in the portfolio.
The overweight in consumer staples was reduced, based on weakening
fundamentals and achievement of valuation targets. Similarly the underweight
in consumer discretionary was reduced as company fundamentals in autos and
retail screened better under our investment approach. Materials were
increased to overweight based on commodity price gains driven by China
growth, and the overall cash weight declined as conviction improved
regarding the global outlook. The weight in emerging markets increased as
the China growth story created a ripple effect in both Asia and some of the
resource supplier nations in the developing world.
Financial markets rallied strongly beginning in March 2009 as policymakers
around the world kept the liquidity pump primed and the global economy began
recovering from the recession in 2008. GDP growth in the U.S. turned
positive in the third quarter, while unemployment continued to rise, ending
the year at 10%. The U.S. lost over 4 million jobs in 2009 according to the
Bureau of Labor Statistics. Government support programs targeting the auto
and housing industries created demand which boosted second half growth.
Central banks around the globe kept interest rates low throughout the year.
The Federal Reserve held its federal funds target at 0%-0.25% and finished
the year with a balance sheet over $2.2 trillion, 2 1/2 times its size prior
to the financial crisis in August 2007. In its final meeting in December,
the FOMC stated that economic conditions are likely to warrant exceptionally
low levels of the federal funds rate for an extended period. Quantitative
easing measures
4
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[GRAPHIC]
including the purchase of $1.25 trillion of agency mortgage-backed
securities (MBS) and $175 billion of agency debt are scheduled to wind down
early in 2010 along with many of the special liquidity facilities given the
improvement in financial markets.
The improving fundamental backdrop created a performance environment in
which the non-government related issues, corporate, commercial MBS, and
asset-backed securities, outperformed U.S. government securities including
agency mortgage-backed securities. Interest rates rose across the maturity
spectrum in 2009 producing negative total returns for U.S. treasuries.
Default expectations tumbled as economic activity recovered and credit
spreads collapsed from March highs. Lower quality credit rewarded investors
with outsized returns. The high yield market returned over 58% compared to
high-grade credit which gained just over 16%. Commercial mortgage-backed and
asset-backed securities also performed strongly, up 28.5% and 24.7%,
respectively, with help from the Term Asset-Backed Loan Facility (TALF)
program.
The primary drivers of fixed income performance in 2009 were sector
allocation and duration positioning. The allocation to high yield and
emerging market debt had a large positive impact on total return as those
two sectors far outpaced the return of the benchmark. Overweight positions
in high-grade credit and commercial MBS during the second half of the year
also contributed positively as yield spreads narrowed. Duration positioning
added to relative return, particularly in December, when interest rates rose
and the duration of the fixed income portfolio was short relative to the
benchmark.
Q. WERE THERE ANY SIGNIFICANT CHANGES TO THE FUND DURING THE PERIOD?
A. During the first part of the year, we lowered the Fund's exposure to U.S.
and international equity and increased its exposure to cash. This defensive
positioning helped to dampen volatility and preserve capital. We reduced
exposure to U.S. large-cap growth equity and increased our allocation to
U.S. core value equity to increase diversification. During the second half
of this period, we lowered the Fund's exposure to cash, fixed income, and
large-cap growth equity and increased its exposure to small-cap, mid-cap and
large-cap core U.S. equity as well as international and emerging markets
equity to take advantage of market opportunities. At the end of the period,
the Fund was overweight equities and underweight fixed income.
5
Total Return Fund
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Understanding Your Fund's Expenses
As a shareholder of the Fund you incur ongoing expenses, which include
portfolio management fees, distribution and service fees (for shareholders of
Classes 2, 3 and 4), professional fees, administrative fees and other Fund
expenses. The following example is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors during the period. The information in the
following table is based on an investment of $1,000, which is invested at the
beginning of the period and held for the entire six-month period ended
December 31, 2009.
ACTUAL EXPENSES
The first section of the table provides information about actual account values
and actual expenses. You may use the information in this section, together with
the amount you invested, to estimate the expenses that you paid over the
period. To do so, simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and
an assumed rate of return of 5% per year before expenses, which is not the
Fund's actual return. You may use this information to compare the ongoing costs
of investing in the Fund and other funds. To do so, compare this 5%
hypothetical example with the 5% hypothetical examples that appear in the
shareholders reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2009 - DECEMBER 31, 2009
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ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID
BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) DURING PERIOD ($)*
- ------------------------------------------------------------------------------------
ACTUAL FUND RETURN**
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Class 1 1,000.00 1,140.10 3.61
Class 2 1,000.00 1,139.49 3.88
Class 3 1,000.00 1,138.61 4.69
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HYPOTHETICAL 5% RETURN (2.5% FOR THE PERIOD)
- ------------------------------------------------------------------------------------
Class 1 1,000.00 1,021.60 3.41
Class 2 1,000.00 1,021.35 3.67
Class 3 1,000.00 1,020.61 4.43
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*EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.67% FOR CLASS 1
SHARES, 0.72% FOR CLASS 2 SHARES AND 0.87% FOR CLASS 3 SHARES, (FOR THE PERIOD
JULY 1, 2009--DECEMBER 31, 2009), MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER
THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE SIX MONTH PERIOD)
**ACTUAL FUND RETURNS FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2009 WERE AS
FOLLOWS: 14.01% FOR CLASS 1 SHARES, 13.95% FOR CLASS 2 SHARES, AND 13.86% FOR
CLASS 3 SHARES.
6
Total Return Fund
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INVESTMENT PROFILE
A mutual fund designed for investors who seek the highest total return,
composed of current income and capital appreciation, as is consistent with
prudent investment risk by investing primarily in a combination of U.S. and
foreign equity and debt securities and cash.
TOP TEN LARGEST
HOLDINGS (EXCLUDING
SHORT-TERM HOLDINGS)
AS OF DECEMBER 31, 2009
as a % of Market Value
---------------------------------
Federal National Mortgage
Assoc.
5.50%, 04/01/14 - 12/01/38 2.02%
---------------------------------
Federal National Mortgage
Assoc.
6.00%, 09/01/19 - 11/01/39 1.23%
---------------------------------
Federal National Mortgage
Assoc.
6.00%, TBA 1.00%
---------------------------------
Microsoft Corp. 0.91%
---------------------------------
U.S. Treasury Notes,
0.02%, 11/30/11 0.90%
---------------------------------
Amgen Inc. 0.83%
---------------------------------
Roche Holding AG 0.76%
---------------------------------
PepsiCo, Inc. 0.75%
---------------------------------
Cisco Systems, Inc. 0.74%
---------------------------------
U.S. Treasury Notes,
3.38%, 11/15/19 0.74%
---------------------------------
MORNINGSTAR PERFORMANCE COMPARISON
Moderate Allocation Peer Group*
Based on average annual total returns for the periods ended 12/31/09
ONE FIVE TEN
YEAR YEAR YEAR
---- ---- ----
Number of Funds in
peer group 303 173 97
----------------------------------------
Peer group
average annual total
return 23.99% 2.15% 2.30%
----------------------------------------
CHANGE IN VALUE OF A $10,000 INVESTMENT
CLASS 1 SHARES AVERAGE
ANNUAL TOTAL
RETURN FOR THE
PERIODS ENDED
DECEMBER 31,
2009
ENDING
VALUE OF A
ONE FIVE TEN $10,000
YEAR YEAR YEAR INVESTMENT
------ ----- ------ ----------
Total
Return
Fund 20.81% 2.38% 3.07% $13,534
S&P 500
Index 26.46% 0.42% -0.96% $ 9,083
Barclays
Capital U.S.
Aggregate
Bond
Index 5.93% 4.97% 6.33% $18,475
[CHART]
Barclays Capital
Total Return Fund S&P 500 Index U.S. Aggregate Bond Index
----------------- ------------- -------------------------
Dec 31, 1999 $10,000.00 $10,000.00 $10,000.00
Dec 1, 2000 10,494.38 9,081.65 11,162.61
Dec 1, 2001 10,191.13 7,999.85 12,105.12
Dec 1, 2002 9,242.12 6,231.73 13,346.50
Dec 1, 2003 11,119.53 8,021.99 13,894.31
Dec 1, 2004 12,030.03 8,894.89 14,497.15
Dec 1, 2005 12,471.48 9,332.39 14,849.22
Dec 1, 2006 14,185.97 10,806.20 15,492.75
Dec 1, 2007 15,842.47 11,400.06 16,572.07
Dec 1, 2008 11,203.32 7,182.28 17,440.48
Dec 1, 2009 13,534.31 9,083.04 18,474.78
Inception
date 7/1/85
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CLASS 2 SHARES AVERAGE
ANNUAL TOTAL
RETURN FOR
THE
PERIODS
ENDED
DECEMBER 31,
2009
ENDING
VALUE OF A
ONE SINCE $10,000
YEAR INCEPTION INVESTMENT
------ --------- ----------
Total
Return
Fund 20.76% 0.53% $10,198
S&P 500
Index 26.46% -2.20% $ 9,216
Barclays
Capital
U.S.
Aggregate
Bond
Index 5.93% 6.37% $12,545
[CHART]
Barclays Capital
Total Return Fund S&P 500 Index U.S. Aggregate Bond Index
----------------- ------------- -------------------------
May 1, 2006 $10,000.00 $10,000.00 $10,000.00
Jun 1, 2008 11,112.88 10,189.31 11,379.95
Sep 1, 2008 10,050.53 9,336.47 11,324.36
Dec 1, 2008 8,444.58 7,287.74 11,842.95
Mar 1, 2009 8,039.29 6,485.23 11,856.66
Jun 1, 2009 8,949.53 7,518.26 12,068.00
Sep 1, 2009 9,866.40 8,691.56 12,519.84
Dec 1, 2009 10,197.90 9,216.40 12,545.28
Inception
date 5/1/06
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CLASS 3 SHARES AVERAGE
ANNUAL TOTAL
RETURN FOR
THE
PERIODS
ENDED
DECEMBER 31,
2009
ENDING
VALUE OF A
ONE SINCE $10,000
YEAR INCEPTION INVESTMENT
------ --------- ----------
Total
Return
Fund 20.57% 0.49% $10,182
S&P 500
Index 26.46% -2.20% $ 9,216
Barclays
Capital
U.S.
Aggregate
Bond
Index 5.93% 6.37% $12,545
[CHART]
Barclays Capital
Total Return Fund S&P 500 Index U.S. Aggregate Bond Index
----------------- ------------- -------------------------
May 1, 2006 $10,000.00 $10,000.00 $10,000.00
Jun 1, 2008 11,120.33 10,189.31 11,379.95
Sep 1, 2008 10,046.25 9,336.47 11,324.36
Dec 1, 2008 8,445.20 7,287.74 11,842.95
Mar 1, 2009 8,033.89 6,485.23 11,856.66
Jun 1, 2009 8,942.76 7,518.26 12,068.00
Sep 1, 2009 9,851.63 8,691.56 12,519.84
Dec 1, 2009 10,182.30 9,216.40 12,545.28
Inception
date 5/1/06
[GRAPHIC]
* MORNINGSTAR PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS
FOR THE ONE-YEAR, FIVE-YEAR, AND TEN-YEAR PERIODS INDICATED IN THE MODERATE
ALLOCATION 'PEER GROUP CONSISTING OF 1240, 954, AND 728 FUNDS, RESPECTIVELY.'
SEE NOTES TO PERFORMANCE ON PAGE 1 FOR FURTHER INFORMATION, INCLUDING AN
EXPLANATION OF MORNINGSTAR PEER CATEGORIES.
PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPHS AND TABLES
DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
7
TOTAL RETURN FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
TOTAL RETURN FUND
Portfolio Composition as a % of the Market Value of $2,611,370 (in thousands)
as of December 31, 2009
[CHART]
Domestic Equity 32.5%
Foreign Equity 28.6%
Bonds & Notes 22.0%
Short-Term 16.7%
Other Investments 0.2%
NUMBER
OF SHARES VALUE
DOMESTIC EQUITY -- 32.6%+
-----------------------------------------------------------------
AEROSPACE & DEFENSE -- 0.8%
Alliant Techsystems, Inc....... 64,284 $ 5,674,349 /(a)/
Hexcel Corp.................... 309,431 4,016,415 /(a)/
Honeywell International Inc.... 69,600 2,728,320
ITT Corp....................... 105,332 5,239,214
Rockwell Collins, Inc.......... 39,672 2,196,242
19,854,540
BEVERAGES -- 0.8%
Brown-Forman Corp. (Class B)... 6,204 332,348
Molson Coors Brewing Co.
(Class B)..................... 36,907 1,666,720
PepsiCo, Inc................... 321,248 19,531,879
21,530,947
BIOTECHNOLOGY -- 1.5%
Amgen Inc...................... 381,705 21,593,052 /(a,h)/
Gilead Sciences, Inc........... 345,517 14,953,976 /(a)/
Vertex Pharmaceuticals Inc..... 78,735 3,373,795 /(a)/
39,920,823
CAPITAL MARKETS -- 1.9%
Affiliated Managers Group Inc.. 58,969 3,971,562 /(a)/
Ameriprise Financial, Inc...... 77,952 3,026,097
Invesco Ltd.................... 137,307 3,225,341
Morgan Stanley................. 61,248 1,812,941
State Street Corp.............. 355,831 15,492,882 /(e)/
The Bank of New York
Mellon Corp................... 136,417 3,815,583
The Charles Schwab Corp........ 107,587 2,024,788
The Goldman Sachs Group, Inc... 96,287 16,257,097
49,626,291
NUMBER
OF SHARES VALUE
CHEMICALS -- 0.8%
Air Products & Chemicals, Inc.. 3,480 $ 282,089
Intrepid Potash, Inc........... 88,662 2,586,271 /(a)/
Monsanto Co.................... 132,718 10,849,697
Praxair, Inc................... 96,127 7,719,960
21,438,017
COMMERCIAL BANKS -- 0.2%
Regions Financial Corp......... 323,411 1,710,844
SunTrust Banks, Inc............ 60,669 1,230,974
US Bancorp..................... 62,641 1,410,049
Wells Fargo & Co............... 24,360 657,476
Zions Bancorporation........... 31,330 401,964
5,411,307
COMMERCIAL SERVICES & SUPPLIES -- 0.6%
Corrections Corporation of
America....................... 414,995 10,188,128 /(a)/
Iron Mountain Inc.............. 152,415 3,468,965 /(a)/
Stericycle, Inc................ 23,709 1,308,026 /(a)/
14,965,119
COMMUNICATIONS EQUIPMENT -- 1.6%
Cisco Systems, Inc............. 810,214 19,396,524 /(a,h)/
Juniper Networks, Inc.......... 137,240 3,660,191 /(a)/
Motorola, Inc.................. 31,320 243,043
QUALCOMM Inc................... 396,881 18,359,715
41,659,473
COMPUTERS & PERIPHERALS -- 0.8%
Hewlett-Packard Co............. 109,969 5,664,503
International Business
Machines Corp................. 75,169 9,839,622
Synaptics Inc.................. 142,963 4,381,816 /(a)/
19,885,941
DIVERSIFIED FINANCIAL SERVICES -- 1.2%
Bank of America Corp........... 354,961 5,345,713
CME Group Inc.................. 45,956 15,438,918
JPMorgan Chase & Co............ 177,346 7,390,007
MSCI Inc. (Class A)............ 45,397 1,443,625 /(a)/
29,618,263
DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.3%
AT&T Inc....................... 174,001 4,877,248
Verizon Communications Inc..... 69,601 2,305,881
7,183,129
ELECTRIC UTILITIES -- 0.6%
Edison International........... 97,441 3,388,998
Entergy Corp................... 20,880 1,708,819
ITC Holdings Corp.............. 102,362 5,332,037
Northeast Utilities............ 178,204 4,595,881
15,025,735
See Notes to Schedules of Investments on page 25 and Notes to Financial
Statements on page 32.
8
TOTAL RETURN FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
NUMBER
OF SHARES VALUE
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 0.3%
Cogent, Inc..................... 184,029 $ 1,912,061 /(a)/
Corning Inc..................... 253,105 4,887,457
6,799,518
ENERGY EQUIPMENT & SERVICES -- 1.0%
Dresser-Rand Group Inc.......... 91,174 2,882,010 /(a)/
Halliburton Co.................. 106,489 3,204,254
National Oilwell Varco, Inc..... 38,281 1,687,809
Noble Corp...................... 71,126 2,894,828
Schlumberger Ltd................ 245,890 16,004,980
26,673,881
FOOD & STAPLES RETAILING -- 0.0%*
CVS Caremark Corp............... 27,840 896,726
FOOD PRODUCTS -- 0.4%
Archer-Daniels-Midland Co....... 27,840 871,670
Kraft Foods Inc. (Class A)...... 68,209 1,853,921
McCormick & Company Inc......... 178,616 6,453,396
Sara Lee Corp................... 195,248 2,378,121
11,557,108
GAS UTILITIES -- 0.1%
EQT CORP........................ 40,444 1,776,300
HEALTHCARE EQUIPMENT & SUPPLIES -- 1.6%
Baxter International Inc........ 48,720 2,858,890
Becton Dickinson & Co........... 33,408 2,634,555
Boston Scientific Corp.......... 153,122 1,378,098 /(a)/
Covidien PLC.................... 197,428 9,454,826
DENTSPLY International Inc...... 46,804 1,646,097
Gen-Probe Inc................... 48,726 2,090,345 /(a)/
Hologic, Inc.................... 258,604 3,749,758 /(a)/
Masimo Corp..................... 158,200 4,812,444 /(a)/
Medtronic, Inc.................. 128,386 5,646,416
ResMed, Inc..................... 125,070 6,537,409 /(a)/
40,808,838
HEALTHCARE PROVIDERS & SERVICES -- 1.2%
Aetna Inc....................... 84,430 2,676,431
Cardinal Health, Inc............ 98,833 3,186,376
Catalyst Health Solutions, Inc.. 93,072 3,394,336 /(a)/
Express Scripts, Inc............ 139,642 12,072,051 /(a)/
McKesson Corp................... 16,705 1,044,063
Psychiatric Solutions, Inc...... 32,254 681,850 /(a)/
UnitedHealth Group, Inc......... 259,013 7,894,716
30,949,823
HOTELS RESTAURANTS & LEISURE -- 0.4%
Carnival Corp................... 154,756 4,904,218 /(a)/
Marriott International, Inc.
(Class A)...................... 28,094 765,562
Penn National Gaming, Inc....... 93,842 2,550,626 /(a)/
The Cheesecake Factory Inc...... 109,556 2,365,314 /(a)/
10,585,720
NUMBER
OF SHARES VALUE
HOUSEHOLD DURABLES -- 0.1%
MDC Holdings, Inc.................. 44,628 $ 1,385,253
HOUSEHOLD PRODUCTS -- 0.4%
Clorox Co.......................... 16,008 976,488
Kimberly-Clark Corp................ 30,624 1,951,055
The Procter & Gamble Co............ 123,192 7,469,131
10,396,674
INDUSTRIAL CONGLOMERATES -- 0.2%
McDermott International, Inc....... 53,843 1,292,770 /(a)/
Textron, Inc....................... 202,982 3,818,091
5,110,861
INSURANCE -- 1.2%
ACE Ltd............................ 161,883 8,158,904
AFLAC Inc.......................... 121,590 5,623,538
AON Corp........................... 45,936 1,761,186
HCC Insurance Holdings, Inc........ 233,998 6,544,924
MetLife, Inc....................... 90,481 3,198,503
PartnerRe Ltd...................... 25,056 1,870,681
Principal Financial Group, Inc..... 76,560 1,840,502
Prudential Financial, Inc.......... 58,464 2,909,169
31,907,407
INTERNET SOFTWARE & SERVICES -- 0.6%
AOL Inc............................ 20,333 473,352 /(a)/
Equinix, Inc....................... 9,631 1,022,331 /(a)/
Google Inc. (Class A).............. 16,657 10,327,007 /(a)/
MercadoLibre, Inc.................. 55,030 2,854,406 /(a)/
14,677,096
IT SERVICES -- 1.5%
Accenture PLC...................... 9,744 404,376
Affiliated Computer Services, Inc.
(Class A)......................... 59,029 3,523,441 /(a)/
Cognizant Technology Solutions
Corp. (Class A)................... 107,713 4,879,399 /(a)/
Cybersource Corp................... 98,157 1,973,937 /(a)/
DST Systems, Inc................... 28,034 1,220,881 /(a)/
Paychex, Inc....................... 98,975 3,032,594
Telvent GIT S.A.................... 27,405 1,068,247
The Western Union Co............... 661,111 12,461,943
Visa, Inc. (Class A)............... 102,423 8,957,916
37,522,734
LIFE SCIENCES TOOLS & SERVICES -- 0.7%
Covance Inc........................ 72,507 3,956,707 /(a)/
Illumina, Inc...................... 86,099 2,638,934 /(a)/
Life Technologies Corp............. 23,664 1,235,971 /(a)/
Mettler-Toledo International, Inc.. 30,945 3,248,916 /(a)/
Thermo Fisher Scientific, Inc...... 119,444 5,696,284 /(a)/
16,776,812
See Notes to Schedules of Investments on page 25 and Notes to Financial
Statements on page 32.
9
TOTAL RETURN FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
NUMBER
OF SHARES VALUE
MACHINERY -- 0.4%
Deere & Co...................... 57,072 $ 3,087,024
Eaton Corp...................... 38,280 2,435,374
Harsco Corp..................... 130,654 4,210,978
9,733,376
MEDIA -- 1.4%
Comcast Corp. (Class A)......... 31,322 501,465
DIRECTV (Class A)............... 252,336 8,415,405 /(a)/
Liberty Global, Inc. (Series C). 255,553 5,583,833 /(a)/
Omnicom Group Inc............... 245,153 9,597,740
Regal Entertainment Group
(Class A)...................... 216,837 3,131,126
The Walt Disney Co.............. 76,560 2,469,060
Time Warner Inc................. 223,665 6,517,598
36,216,227
METALS & MINING -- 0.4%
Allegheny Technologies Inc...... 113,135 5,065,054
Freeport-McMoRan Copper &
Gold Inc....................... 60,997 4,897,449 /(a)/
9,962,503
MULTILINE RETAIL -- 0.5%
Dollar General Corp............. 96,398 2,162,207 /(a)/
Kohl's Corp..................... 91,009 4,908,115 /(a)/
Target Corp..................... 141,181 6,828,925
13,899,247
MULTI-UTILITIES -- 0.2%
Dominion Resources, Inc......... 87,001 3,386,079
SCANA Corp...................... 54,243 2,043,876
5,429,955
OIL, GAS & CONSUMABLE FUELS -- 1.9%
Apache Corp..................... 55,899 5,767,100
Chesapeake Energy Corp.......... 19,488 504,349
Chevron Corp.................... 66,120 5,090,579
Devon Energy Corp............... 53,592 3,939,012
Exxon Mobil Corp................ 152,943 10,429,183 /(h)/
Marathon Oil Corp............... 340,169 10,620,076
Occidental Petroleum Corp....... 27,840 2,264,784
Peabody Energy Corp............. 47,345 2,140,467
Southwestern Energy Co.......... 155,472 7,493,750 /(a)/
48,249,300
PAPER & FOREST PRODUCTS -- 0.1%
Weyerhaeuser Co................. 41,760 1,801,526
PERSONAL PRODUCTS -- 0.2%
Alberto-Culver Co............... 85,382 2,500,839
Avon Products, Inc.............. 13,920 438,480
Mead Johnson Nutrition Co.
(Class A)...................... 49,276 2,153,361 /(a)/
5,092,680
NUMBER
OF SHARES VALUE
PHARMACEUTICALS -- 0.6%
Abbott Laboratories........... 20,880 $ 1,127,311
Bristol-Myers Squibb Co....... 178,873 4,516,543
Johnson & Johnson............. 80,040 5,155,376
Merck & Company Inc........... 15,312 559,500
Pfizer Inc.................... 233,161 4,241,199
15,599,929
PROFESSIONAL SERVICES -- 0.1%
HIS, Inc. (Class A)........... 53,174 2,914,467 /(a)/
REAL ESTATE INVESTMENT TRUSTS (REIT'S) -- 0.1%
Douglas Emmett, Inc. (REIT)... 98,399 1,402,186
SL Green Realty Corp. (REIT).. 29,287 1,471,379
2,873,565
REAL ESTATE MANAGEMENT & DEVELOPMENT -- 0.3%
CB Richard Ellis Group, Inc.
(Class A).................... 565,911 7,679,412 /(a)/
ROAD & RAIL -- 0.1%
Union Pacific Corp............ 44,544 2,846,362
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 0.8%
Hittite Microwave Corp........ 94,482 3,850,142 /(a)/
Intel Corp.................... 424,595 8,661,738 /(h)/
Kla-Tencor Corp............... 9,048 327,176
Marvell Technology Group Ltd.. 248,557 5,157,558 /(a)/
Microchip Technology Inc...... 38,280 1,112,417
Nvidia Corp................... 27,840 520,051 /(a)/
Texas Instruments Inc......... 54,289 1,414,771
21,043,853
SOFTWARE -- 1.9%
Activision Blizzard, Inc...... 338,512 3,760,868 /(a)/
Blackboard Inc................ 57,674 2,617,823 /(a)/
Citrix Systems, Inc........... 85,935 3,575,755 /(a)/
Intuit, Inc................... 167,268 5,136,800 /(a)/
Microsoft Corp................ 775,701 23,651,123 /(h)/
Oracle Corp................... 97,441 2,391,202
Rovi Corp..................... 261,408 8,331,073 /(a)/
49,464,644
SPECIALTY RETAIL -- 1.2%
Bed Bath & Beyond, Inc........ 326,510 12,613,082 /(a,h)/
Lowe's Companies, Inc......... 539,081 12,609,104
O'Reilly Automotive, Inc...... 89,269 3,402,934 /(a)/
Urban Outfitters, Inc......... 49,248 1,723,188 /(a)/
30,348,308
TEXTILES APPAREL & LUXURY GOODS -- 0.2%
Coach, Inc.................... 102,621 3,748,745
NIKE, Inc. (Class B).......... 5,568 367,878
4,116,623
See Notes to Schedules of Investments on page 25 and Notes to Financial
Statements on page 32.
10
TOTAL RETURN FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
NUMBER
OF SHARES VALUE
THRIFTS & MORTGAGE FINANCE -- 0.1%
People's United Financial, Inc... 169,161 $ 2,824,989
TOBACCO -- 0.2%
Altria Group, Inc................ 34,801 683,144
Philip Morris International Inc.. 73,080 3,521,725
4,204,869
WATER UTILITIES -- 0.1%
American Water Works
Company, Inc.................... 134,935 3,023,893
WIRELESS TELECOMMUNICATION SERVICES -- 1.0%
American Tower Corp. (Class A)... 147,686 6,381,512 /(a)/
NII Holdings, Inc................ 522,991 17,562,037 /(a)/
Syniverse Holdings, Inc.......... 124,530 2,176,784 /(a)/
26,120,333
TOTAL DOMESTIC EQUITY
(COST $797,640,727)............. 837,390,397
-----------------------------------------------------------------
FOREIGN EQUITY -- 29.0%
-----------------------------------------------------------------
COMMON STOCK -- 28.4%
AEROSPACE & DEFENSE -- 0.2%
CAE, Inc......................... 586,364 4,905,244
AUTO COMPONENTS -- 0.1%
Hankook Tire Company Ltd......... 63,560 1,389,212 /(a)/
AUTOMOBILES -- 0.8%
Daimler AG (Regd.)............... 65,384 3,485,502
Suzuki Motor Corp................ 294,995 7,267,967
Toyota Motor Corp................ 214,465 9,045,935
19,799,404
BEVERAGES -- 0.2%
Coca-Cola Icecek AS (Class C).... 132,099 1,315,447
Heineken N.V..................... 73,943 3,513,272
4,828,719
BUILDING PRODUCTS -- 0.1%
Asahi Glass Company Ltd.......... 147,000 1,398,875
Daikin Industries Ltd............ 60,000 2,370,852
3,769,727
CAPITAL MARKETS -- 1.0%
Credit Suisse Group AG (Regd.)... 116,320 5,766,549
Egyptian Financial Group-
Hermes Holding.................. 232,628 1,058,861
Mirae Asset Securities
Company Ltd..................... 12,144 676,671
NUMBER
OF SHARES VALUE
Nomura Holdings Inc................ 2,268,535 $ 16,877,600
Woori Investment & Securities
Company Ltd....................... 45,400 646,781
Yuanta Financial Holding
Company Ltd....................... 1,049,251 767,736
25,794,198
CHEMICALS -- 1.3%
Linde AG........................... 69,449 8,374,372
Potash Corp of
Saskatchewan Inc.................. 23,664 2,567,544
Potash Corp of
Saskatchewan Inc.................. 92,995 10,147,086
Sinofert Holdings Ltd.............. 1,911,469 1,060,237
Sociedad Quimica y Minera de Chile
S.A. ADR (Series B)............... 74,492 2,798,664
SODIFF Advanced Materials
Company Ltd....................... 10,372 843,240 /(a)/
Syngenta AG........................ 21,584 6,099,615
Taiwan Fertilizer Company Ltd...... 330,000 1,175,028
33,065,786
COMMERCIAL BANKS -- 4.2%
Akbank TAS......................... 194,736 1,234,011
Axis Bank Ltd...................... 29,368 619,553
Banco do Brasil S.A................ 27,992 476,917
Banco Santander Brasil S.A......... 499,000 6,841,499
Banco Santander Chile ADR.......... 10,019 649,031
Banco Santander S.A. (Regd.)....... 943,135 15,598,029
Bank of China Ltd.................. 765,424 411,298
BNP Paribas........................ 192,717 15,298,725
China Construction Bank Corp....... 820,000 700,340
China Merchants Bank
Company Ltd....................... 371,450 966,394
Credit Agricole S.A................ 508,058 8,923,811
Grupo Financiero Banorte SAB de
C.V. (Series O)................... 213,776 772,550
Halyk Savings Bank of Kazakhstan
JSC GDR........................... 7,518 71,421 /(a)/
HSBC Holdings PLC.................. 1,267,705 14,459,268
Industrial & Commercial
Bank of China..................... 1,666,576 1,372,415
Intesa Sanpaolo S.p.A.............. 1,515,526 6,825,603
Kazkommertsbank GDR................ 86,287 785,212 /(a)/
KB Financial Group Inc............. 107,911 5,494,854 /(a)/
Lloyds Banking Group PLC........... 8,014,312 6,446,750
Metropolitan Bank & Trust.......... 854,099 826,944
Mitsubishi UFJ Financial
Group Inc......................... 2,253,803 11,106,515
Raiffeisen International Bank
Holding AG (Regd.)................ 12,537 700,979
Siam Commercial Bank PCL........... 190,947 482,522
Standard Bank Group Ltd............ 54,999 757,085
Sumitomo Mitsui Financial
Group Inc......................... 18,126 520,356
The Bank of Yokohama Ltd........... 925,981 4,223,789
UniCredit S.p.A.................... 708,339 2,370,495
108,936,366
See Notes to Schedules of Investments on page 25 and Notes to Financial
Statements on page 32.
11
TOTAL RETURN FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
NUMBER
OF SHARES VALUE
COMMERCIAL SERVICES & SUPPLIES -- 0.5%
Brambles Ltd...................... 1,426,403 $ 8,661,617
G4S PLC........................... 815,226 3,416,337
G4S PLC........................... 391,247 1,634,968
Pan Asia Environmental Protection
Group Ltd........................ 613,573 94,975
13,807,897
COMMUNICATIONS EQUIPMENT -- 0.9%
Nokia Oyj......................... 196,245 2,539,570
Research In Motion Ltd............ 221,599 14,966,796 /(a)/
Research In Motion Ltd............ 71,497 4,844,214 /(a)/
Telefonaktiebolaget LM Ericsson
(Series B)....................... 133,982 1,235,958
ZTE Corp.......................... 115,502 713,027
24,299,565
COMPUTERS & PERIPHERALS -- 0.1%
Asustek Computer Inc.............. 391,862 754,755
HTC Corp.......................... 117,348 1,344,406
2,099,161
CONSTRUCTION & ENGINEERING -- 0.5%
China Communications
Construction Company Ltd......... 824,000 782,873
China State Construction
International Holdings Ltd....... 1,482,577 621,520
Doosan Heavy Industries and
Construction Company Ltd......... 20,546 1,428,186 /(a)/
Empresas ICA SAB de C.V........... 326,252 762,189 /(a)/
Larsen & Toubro Ltd............... 116,141 4,180,680
Murray & Roberts Holdings Ltd..... 109,440 685,979
Vinci S.A......................... 78,908 4,443,952
12,905,379
CONSTRUCTION MATERIALS -- 0.2%
CRH PLC........................... 200,672 5,489,643
DIVERSIFIED FINANCIAL SERVICES -- 0.2%
Deutsche Boerse AG................ 68,251 5,656,569
Reliance Capital Ltd.............. 24,446 448,713
6,105,282
DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.4%
Telefonica S.A.................... 257,372 7,209,623
Telekomunikasi Indonesia Tbk PT
(Series B)....................... 913,000 908,823
Telstra Corporation Ltd........... 796,335 2,451,234
10,569,680
ELECTRIC UTILITIES -- 0.4%
CEZ AS............................ 9,340 437,879
E.ON AG........................... 116,125 4,878,315
Iberdrola S.A..................... 484,537 4,647,083
9,963,277
NUMBER
OF SHARES VALUE
ELECTRICAL EQUIPMENT -- 0.5%
ABB Ltd. (Regd.)............... 217,651 $ 4,196,825 /(a)/
ABB Ltd. ADR................... 167,041 3,190,483 /(a)/
Alstom S.A..................... 11,122 778,477
Schneider Electric S.A......... 37,297 4,340,247
Zhuzhou CSR Times Electric
Company Ltd................... 372,607 760,282
13,266,314
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 0.1%
Delta Electronics, Inc......... 577,890 1,817,901
HON HAI Precision Industry
Company Ltd................... 232,127 1,085,578
Prime View International
Company Ltd................... 73,000 190,738
3,094,217
ENERGY EQUIPMENT & SERVICES -- 0.7%
Saipem S.p.A................... 53,818 1,858,837
Tesco Corp..................... 133,883 1,728,430 /(a)/
Transocean Ltd................. 165,366 13,692,305 /(a)/
17,279,572
FOOD & STAPLES RETAILING -- 0.7%
Koninklijke Ahold N.V.......... 251,407 3,333,600
Metro AG....................... 80,341 4,910,753
President Chain Store Corp..... 216,720 514,802 /(a)/
Tesco PLC...................... 1,380,186 9,519,540
X5 Retail Group N.V. GDR....... 26,835 856,037 /(a)/
19,134,732
FOOD PRODUCTS -- 1.2%
China Agri-Industries
Holdings Ltd.................. 625,000 816,499
Cosan SA Industria e Comercio.. 133,000 1,953,190 /(a)/
Groupe Danone.................. 105,635 6,481,040
IOI Corp. Bhd.................. 466,720 743,179
Nestle S.A. (Regd.)............ 343,290 16,672,378
Nestle S.A. ADR................ 34,800 1,682,580
Perdigao S.A................... 39,500 1,028,060 /(a)/
Want Want China Holdings Ltd... 665,799 464,911
29,841,837
HEALTHCARE EQUIPMENT & SUPPLIES -- 0.4%
Cie Generale d'Optique Essilor
International S.A............. 165,522 9,908,411
HEALTHCARE PROVIDERS & SERVICES -- 0.1%
Diagnosticos da America S.A.... 23,470 767,299 /(a)/
Fleury S.A..................... 82,041 865,497 /(a)/
1,632,796
HOUSEHOLD DURABLES -- 0.1%
Desarrolladora Homex
SAB de C.V.................... 129,002 725,274 /(a)/
See Notes to Schedules of Investments on page 25 and Notes to Financial
Statements on page 32.
12
TOTAL RETURN FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
NUMBER
OF SHARES VALUE
Dynamex, Inc......................... 18,520 $ 1,930,677
2,655,951
HOUSEHOLD PRODUCTS -- 0.5%
Reckitt Benckiser Group PLC.......... 255,746 13,840,550
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.0%*
Huaneng Power International,
Inc................................. 786,219 440,171
INDUSTRIAL CONGLOMERATES -- 0.9%
Chongqing Machinery & Electric
Company Ltd......................... 2,788,413 659,374 /(a)/
Koninklijke Philips Electronics N.V.. 307,414 9,094,554
MAX India Ltd........................ 120,430 573,359 /(a)/
Siemens AG (Regd.)................... 124,120 11,400,132
Siemens AG ADR....................... 10,440 957,348
22,684,767
INSURANCE -- 1.0%
AXA S.A.............................. 218,950 5,145,022
China Life Insurance
Company Ltd......................... 287,689 1,409,458
Prudential PLC....................... 823,330 8,425,991
Samsung Fire & Marine Insurance
Company Ltd......................... 4,880 835,303
Sony Financial Holdings Inc.......... 2,438 6,347,450 /(a)/
Tong Yang Life Insurance............. 49,024 589,395 /(a)/
Zurich Financial Services AG......... 17,863 3,907,919
26,660,538
INTERNET SOFTWARE & SERVICES -- 0.2%
Baidu, Inc ADR....................... 10,154 4,175,629 /(a)/
MACHINERY -- 0.3%
China South Locomotive and Rolling
Stock Corp.......................... 5,988,146 4,372,581
Mitsubishi Heavy Industries Ltd...... 827,000 2,918,053
7,290,634
MARINE -- 0.0%*
A P Moller -- Maersk A/S
(Series B).......................... 158 1,111,076
MEDIA -- 0.4%
Focus Media Holding Ltd. ADR......... 73,419 1,163,691 /(a)/
Vivendi.............................. 278,311 8,267,108
9,430,799
METALS & MINING -- 1.9%
Antofagasta PLC...................... 86,836 1,381,050
Barrick Gold Corp.................... 41,760 1,644,509
BHP Billiton PLC..................... 362,562 11,555,963
China Molybdenum
Company Ltd......................... 475,993 379,172
NUMBER
OF SHARES VALUE
Harmony Gold Mining Company
Ltd. ADR...................... 97,009 $ 986,582
Hidili Industry International
Development Ltd............... 442,544 550,514
Kinross Gold Corp.............. 96,527 1,783,496
New World Resources N.V.
(Class A)..................... 81,371 732,688
POSCO.......................... 2,820 1,487,188
Rio Tinto PLC (Regd.).......... 218,849 11,814,579
Sumitomo Metal Industries Ltd.. 3,001,049 8,070,405
Tata Steel Ltd................. 46,182 608,552
ThyssenKrupp AG................ 71,561 2,692,390
Vale S.A....................... 221,203 5,490,258
49,177,346
MULTI-UTILITIES -- 0.7%
National Grid PLC.............. 989,430 10,797,197
Veolia Environnement........... 191,897 6,330,819
17,128,016
OIL, GAS & CONSUMABLE FUELS -- 2.4%
BG Group PLC................... 385,310 6,955,755
BP PLC......................... 574,255 5,543,902
China Shenhua Energy
Company Ltd................... 213,500 1,036,307
CNOOC Ltd...................... 848,000 1,318,858
ENI S.p.A...................... 220,844 5,628,672
Gazprom OAO ADR................ 118,664 2,972,533
LUKOIL ADR..................... 70,131 4,018,506
Paladin Energy Ltd............. 915,219 3,420,616 /(a)/
PetroChina Company Ltd......... 930,000 1,105,537
Petroleo Brasileiro S.A. ADR... 198,410 8,410,600
Reliance Industries Ltd........ 66,744 1,563,532
Suncor Energy Inc.............. 159,491 5,631,627
Suncor Energy Inc.............. 96,421 3,422,355
Total S.A...................... 162,264 10,430,925
61,459,725
PERSONAL PRODUCTS -- 0.2%
Shiseido Company Ltd........... 227,303 4,370,414
PHARMACEUTICALS -- 1.7%
Bayer AG....................... 145,953 11,689,446
Daiichi Sankyo Company Ltd..... 129,900 2,725,366
Novartis AG (Regd.)............ 134,676 7,359,531
Roche Holding AG............... 115,955 19,843,218
Sinopharm Group Co............. 10,389 36,912 /(a)/
Teva Pharmaceutical Industries
Ltd. ADR...................... 22,513 1,264,780
42,919,253
PROFESSIONAL SERVICES -- 0.1%
The Capita Group PLC........... 118,437 1,431,770
REAL ESTATE MANAGEMENT & DEVELOPMENT -- 0.4%
CapitaLand Ltd................. 566,500 1,681,633
See Notes to Schedules of Investments on page 25 and Notes to Financial
Statements on page 32.
13
TOTAL RETURN FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
NUMBER
OF SHARES VALUE
Franshion Properties China Ltd... 1,494,003 $ 524,688
Hung Poo Real Estate
Development Corp................ 598,888 962,230
Mitsubishi Estate Company Ltd.... 456,982 7,299,245
Shenzhen Investment Ltd.......... 897,320 377,395
10,845,191
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 1.0%
ASM Pacific Technology Ltd....... 73,287 692,845
Samsung Electronics
Company Ltd..................... 16,100 11,040,247
Taiwan Semiconductor
Manufacturing Company Ltd....... 4,915,433 9,906,923
Taiwan Semiconductor
Manufacturing Company
Ltd. ADR........................ 311,942 3,568,617
25,208,632
SOFTWARE -- 0.0%*
Shanda Interactive Entertainment
Ltd. ADR........................ 26,713 1,405,371 /(a)/
SPECIALTY RETAIL -- 0.6%
Esprit Holdings Ltd.............. 815,336 5,409,027
Hennes & Mauritz AB (Series B)... 54,446 3,024,458
Yamada Denki Company Ltd......... 107,070 7,226,218
15,659,703
TEXTILES APPAREL & LUXURY GOODS -- 0.2%
Adidas AG........................ 96,439 5,228,029
TRADING COMPANIES & DISTRIBUTORS -- 0.1%
Mitsubishi Corp.................. 109,000 2,716,201
TRANSPORTATION INFRASTRUCTURE -- 0.0%
Dalian Port PDA Company Ltd...... 1,378,632 530,032
WIRELESS TELECOMMUNICATION SERVICES -- 0.9%
America Movil SAB de C.V. ADR
(Series L)...................... 38,645 1,815,542
China Mobile Ltd................. 398,462 3,707,180
Mobile Telesystems OJSC ADR...... 81,729 3,995,731
MTN Group Ltd.................... 411,945 6,571,125
Philippine Long Distance
Telephone Co.................... 8,490 479,304
Vodafone Group PLC............... 2,489,412 5,763,509
22,332,391
TOTAL COMMON STOCK
(COST $707,720,117)............. 730,588,608
NUMBER
OF SHARES VALUE
--------------------------------------------------------------------
PREFERRED STOCK -- 0.6%
--------------------------------------------------------------------
COMMERCIAL BANKS -- 0.1%
Itau Unibanco Banco Multiplo S.A.. 142,110 $ 3,154,105
DIVERSIFIED FINANCIAL SERVICES -- 0.1%
Bank of America Corp.............. 221,483 3,304,526 /(a,i)/
ELECTRIC UTILITIES -- 0.0%*
Cia Energetica de Minas Gerais.... 31,486 570,765
MEDIA -- 0.0%*
NET Servicos de
Comunicacao S.A.................. 44,204 608,591
METALS & MINING -- 0.2%
Cia Vale do Rio Doce.............. 175,189 4,241,037
OIL, GAS & CONSUMABLE FUELS -- 0.1%
Petroleo Brasileiro S.A........... 71,741 1,509,969
WIRELESS TELECOMMUNICATION SERVICES -- 0.1%
Vivo Participacoes S.A............ 60,427 1,888,517
TOTAL PREFERRED STOCK
(COST $10,843,397)............... 15,277,510
TOTAL FOREIGN EQUITY
(COST $718,563,514).............. 745,866,118
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------------
BONDS AND NOTES -- 22.3%
----------------------------------------------------------------
U.S. TREASURIES -- 4.6%
U.S. Treasury Bonds
4.50% 08/15/39.............. $18,189,700 17,777,594
U.S. Treasury Notes
0.02% 11/30/11.............. 23,677,200 23,522,754 /(d)/
0.05% 01/31/11.............. 2,773,800 2,782,468 /(d)/
1.00% 10/31/11.............. 17,831,000 17,814,952 /(d)/
1.75% 08/15/12.............. 3,911,200 3,936,560
2.13% 11/30/14.............. 17,316,500 16,906,618
2.88% 06/30/10.............. 14,500,000 14,689,747
3.38% 11/15/19.............. 20,114,400 19,347,639 /(h)/
4.63% 10/31/11.............. 640,000 681,525
117,459,857
AGENCY MORTGAGE BACKED -- 6.4%
Federal Home Loan Mortgage Corp.
4.50% 06/01/33 - 02/01/35... 46,675 46,786 /(h)/
5.00% 07/01/35 - 04/01/39... 7,980,827 8,415,960 /(h)/
See Notes to Schedules of Investments on page 25 and Notes to Financial
Statements on page 32.
14
TOTAL RETURN FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
6.00% 04/01/17 - 11/01/37... $ 4,211,883 $ 4,475,925 /(h)/
6.50% 06/01/29 - 03/01/30... 4,629 5,010 /(h)/
7.00% 06/01/29 - 08/01/36... 208,051 228,072 /(h)/
7.50% 01/01/28 - 09/01/33... 23,905 26,853 /(h)/
8.00% 01/01/30 - 11/01/30... 13,167 15,104 /(h)/
9.00% 10/01/25.............. 458 529 /(h)/
Federal National Mortgage Assoc.
4.00% 05/01/19 - 06/01/19... 170,223 173,964 /(h)/
4.50% 05/01/18 - 12/01/34... 983,787 1,012,876 /(h)/
5.00% 07/01/20 - 08/01/35... 3,223,132 3,317,076 /(h)/
5.47% 04/01/37.............. 35,320 36,981 /(i)/
5.50% 04/01/14 - 12/01/38... 50,288,387 52,873,933 /(h)/
5.81% 03/01/37.............. 36,628 38,431 /(i)/
6.00% 09/01/19 - 11/01/39... 30,119,319 32,161,928 /(h)/
6.50% 09/01/17 - 08/01/36... 668,234 719,817 /(h)/
7.00% 04/01/17 - 12/01/33... 10,669 11,648 /(h)/
7.50% 09/01/13 - 03/01/34... 65,072 72,682 /(h)/
8.00% 12/01/11 - 11/01/33... 22,220 25,257 /(h)/
8.50% 06/01/30.............. 75 83 /(h)/
9.00% 04/01/16 - 12/01/22... 5,078 5,592 /(h)/
4.50% TBA................... 2,060,000 2,056,138 /(c)/
5.50% TBA................... 13,146,000 13,863,666 /(c)/
6.00% TBA................... 24,767,000 26,237,116 /(c)/
6.50% TBA................... 15,044,000 16,111,191 /(c)/
7.00% TBA................... 975,000 1,068,386 /(c)/
Government National
Mortgage Assoc.
4.50% 08/15/33 - 09/15/34... 218,183 219,870 /(h)/
6.00% 04/15/27 - 09/15/36... 482,548 516,713 /(h)/
6.50% 04/15/24 - 09/15/36... 406,352 434,747 /(h)/
7.00% 03/15/12 - 10/15/36... 329,366 358,367 /(h)/
8.00% 03/15/30.............. 3,237 3,723 /(h)/
9.00% 11/15/16 - 12/15/21... 13,341 14,860 /(h)/
164,549,284
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.3%
Federal Home Loan
Mortgage Corp.
0.00% 11/15/37.............. 1,116,519 907,065 /(g,p)/
0.17% 09/25/43.............. 304,966 3,357 /(g,h,i,p)/
0.62% 09/15/34.............. 663,990 502,835 /(d,f)/
4.50% 10/15/16 - 03/15/19... 122,611 8,248 /(g,h,p)/
5.00% 07/15/17 - 06/15/28... 227,242 13,174 /(g,h,p)/
5.00% 05/15/38.............. 590,284 581,316
5.50% 04/15/17 - 06/15/33... 97,498 12,871 /(g,h,p)/
7.50% 01/15/16.............. 2,355 2,400 /(h)/
7.50% 07/15/27.............. 4,304 823 /(g,h,p)/
8.00% 02/01/23 - 07/01/24... 2,899 649 /(g,h,p)/
Federal Home Loan Mortgage
Corp. REMIC
6.01% 12/15/39.............. 390,268 40,856 /(g,I,p)/
Federal Home Loan
Mortgage STRIPS
9.46% 08/01/27.............. 712 571 /(d,f,h)/
Federal National Mortgage Assoc.
1.20% 12/25/42.............. 158,244 7,560 /(g,h,i,p)/
4.50% 11/25/13 - 05/25/18... 46,330 1,256 /(g,h,p)/
4.75% 11/25/14.............. 987 1 /(g,h,p)/
5.00% 02/25/32.............. 1,316,758 169,948 /(g,h,p)/
PRINCIPAL
AMOUNT VALUE
5.00% 10/25/35 - 08/25/38... $1,531,424 $1,504,519
5.50% 01/25/33.............. 668,087 688,686
7.37% 09/25/42.............. 162,508 30,657 /(g,h,i,p)/
7.47% 08/25/16.............. 25,443 1,472 /(g,h,i,p)/
16.10% 03/25/31.............. 46,810 52,955 /(h,i)/
Federal National Mortgage Assoc.
(Class 1)
4.50% 09/01/35 - 01/01/36... 3,807,472 782,673 /(g,p)/
5.00% 05/25/38.............. 1,194,519 217,593 /(g,p)/
Federal National Mortgage Assoc.
(Class 2)
4.50% 08/01/35.............. 1,224,546 289,045 /(g,p)/
5.00% 03/25/38.............. 1,119,837 220,597 /(g,p)/
5.50% 12/01/33.............. 275,090 60,588 /(g,p)/
7.50% 11/01/23.............. 16,442 2,646 /(g,h,p)/
8.00% 08/01/23 - 07/01/24... 6,235 1,458 /(g,h,p)/
Federal National Mortgage Assoc.
(Class H)
5.00% 10/25/22.............. 62,107 6,670 /(g,h,p)/
Federal National Mortgage Assoc.
(Class K)
1008.00% 05/25/22.............. 4 84 /(g,h,p)/
Federal National Mortgage
Assoc. REMIC
6.01% 01/25/40.............. 1,457,263 163,624 /(g,i,p)/
6.31% 07/25/36.............. 5,589,353 687,475 /(g,i,p)/
6.42% 06/25/36.............. 2,640,924 355,906 /(g,i,p)/
Government National Mortgage
Assoc.
6.17% 05/20/39.............. 4,350,097 481,251 /(g,i,p)/
6.27% 01/20/37.............. 6,774,300 656,294 /(g,i,p)/
8,457,123
ASSET BACKED -- 0.7%
American Express Credit Account
Master Trust (Class A)
0.22% 12/17/12.............. 5,000,000 4,991,646 /(h,i)/
Bear Stearns Asset Backed Securities
Trust
0.45% 11/25/35.............. 1,595,797 1,456,966 /(i)/
Bear Stearns Asset Backed Securities
Trust (Class A)
0.60% 01/25/34.............. 9,125 6,011 /(i)/
Capital Auto Receivables Asset Trust
0.29% 05/15/11.............. 1,132,917 1,131,582 /(h,i)/
Capital One Auto Finance Trust
0.23% 04/15/12.............. 852,462 850,387 /(h,i)/
Countrywide Asset-Backed
Certificates
5.31% 08/25/35.............. 250,000 230,177 /(i)/
Countrywide Asset-Backed
Certificates (Class M)
1.28% 06/26/33.............. 586,601 136,029 /(i)/
Discover Card Master Trust I (Class A)
0.56% 06/16/15.............. 420,000 394,809 /(i)/
Discover Card Master Trust I (Class B)
(Series 2)
0.41% 05/15/12.............. 690,000 660,614 /(i)/
See Notes to Schedules of Investments on page 25 and Notes to Financial
Statements on page 32.
15
TOTAL RETURN FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
Ford Credit Auto Owner Trust
(Class A)
0.27% 02/15/12...... $3,763,942 $ 3,753,949 /(h,i)/
GSAMP Trust
0.34% 05/25/36...... 387,628 317,855 /(b,i)/
GSR Mortgage Loan Trust
0.43% 11/25/30...... 1,477,206 267,295 /(i)/
Indymac Residential Asset
Backed Trust
0.35% 06/25/36...... 839,913 814,692 /(i)/
Indymac Residential Asset
Backed Trust (Class M)
2.23% 04/25/47...... 189,000 439 /(h,i,n)/
Indymac Seconds Asset Backed
Trust (Class A)
0.39% 02/25/37...... 1,381,286 515,609 /(i)/
Mid-State Trust
7.54% 07/01/35...... 4,022 3,787 /(h,n)/
Nissan Auto Lease Trust
0.30% 02/15/13...... 539,279 538,826 /(i)/
Residential Asset Securities Corp.
0.73% 07/25/32...... 4,938 2,397 /(h,i)/
Saxon Asset Securities Trust
5.23% 08/25/35...... 241,989 209,922 /(i)/
SLM Student Loan Trust (Class A)
0.30% 06/15/18...... 54,539 53,910 /(h,i)/
Triad Auto Receivables Owner
Trust (Class A)
0.29% 02/12/14...... 2,000,000 1,936,385 /(i)/
Wells Fargo Home Equity Trust
3.97% 05/25/34...... 6,468 6,416 /(h,i,n)/
18,279,703
CORPORATE NOTES -- 8.2%
Abbey National Treasury Services PLC
3.88% 11/10/14...... 842,000 844,997 /(b)/
Abu Dhabi National Energy Co.
6.25% 09/16/19...... 300,000 290,596 /(b)/
Adaro Indonesia PT
7.63% 10/22/19...... 100,000 98,875 /(b)/
AES El Salvador Trust
6.75% 02/01/16...... 300,000 266,350 /(b)/
Air Jamaica Ltd.
9.38% 07/08/15...... 282,857 246,086
Alliance One International, Inc.
10.00% 07/15/16...... 676,000 709,800 /(b)/
ALROSA Finance S.A.
8.88% 11/17/14...... 300,000 308,625 /(b)/
American Electric Power
Company, Inc. (Series C)
5.38% 03/15/10...... 2,125,000 2,144,293 /(h)/
American Tower Corp.
4.63% 04/01/15...... 1,000,000 1,011,455 /(b)/
Anheuser-Busch InBev
Worldwide Inc.
5.38% 11/15/14...... 883,000 934,882 /(b)/
7.20% 01/15/14...... 216,000 244,979 /(b)/
7.75% 01/15/19...... 1,308,000 1,531,400 /(b)/
PRINCIPAL
AMOUNT VALUE
Apria Healthcare Group Inc.
11.25% 11/01/14. $1,110,000 $ 1,218,225 /(b)/
12.38% 11/01/14. 365,000 401,500 /(b)/
ARAMARK Corp.
8.50% 02/01/15. 1,000,000 1,030,000
Archer-Daniels-Midland Co.
6.45% 01/15/38. 651,000 724,809
Arcos Dorados BV
7.50% 10/01/19. 200,000 198,250 /(b)/
Arizona Public Service Co.
6.25% 08/01/16. 370,000 391,180 /(h)/
AT&T Inc.
6.40% 05/15/38. 1,208,000 1,241,424
6.70% 11/15/13. 934,000 1,053,783
Axtel SAB de C.V.
9.00% 09/22/19. 74,000 75,850 /(b)/
Banco do Brasil S.A.
8.50% 10/29/49. 500,000 532,500 /(b)/
Banco Mercantil del Norte S.A.
6.14% 10/13/16. 148,000 143,476 /(i)/
Banco Nacional de
Desenvolvimento
Economico e Social
6.50% 06/10/19. 1,000,000 1,075,000 /(b)/
Bank of America Corp.
5.75% 12/01/17. 2,750,000 2,816,050
6.50% 08/01/16. 1,275,000 1,371,036
7.38% 05/15/14. 335,000 380,129
Barclays Bank PLC
5.00% 09/22/16. 543,000 554,844
5.20% 07/10/14. 800,000 848,006
BlackRock, Inc.
5.00% 12/10/19. 878,000 862,794
Boston Properties LP (REIT)
5.88% 10/15/19. 686,000 688,148
Boston Scientific Corp.
6.00% 01/15/20. 448,000 457,756
Bristol-Myers Squibb Co.
5.88% 11/15/36. 234,000 243,197 /(h)/
CA, Inc.
5.38% 12/01/19. 636,000 639,568
6.13% 12/01/14. 345,000 381,139
Calpine Corp.
7.25% 10/15/17. 2,648,000 2,542,080 /(b)/
Cantor Fitzgerald LP
7.88% 10/15/19. 710,000 694,845 /(b)/
Carolina Power & Light Co.
5.15% 04/01/15. 810,000 871,667 /(h)/
5.70% 04/01/35. 155,000 154,143 /(h)/
6.13% 09/15/33. 12,000 12,591 /(h)/
Case New Holland Inc.
7.75% 09/01/13. 1,476,000 1,509,210 /(b)/
Cenovus Energy Inc.
4.50% 09/15/14. 753,000 777,282 /(b)/
6.75% 11/15/39. 685,000 746,687 /(b)/
Centrais Eletricas Brasileiras S.A.
6.88% 07/30/19. 400,000 433,500 /(b)/
See Notes to Schedules of Investments on page 25 and Notes to Financial
Statements on page 32.
16
TOTAL RETURN FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
Central American Bank for
Economic Integration
5.38% 09/24/14.... $ 770,000 $ 798,875 /(b)/
CFG Investment SAC
9.25% 12/19/13.... 400,000 397,000
Chesapeake Energy Corp.
7.25% 12/15/18.... 1,000,000 1,007,500
Ciliandra Perkasa Finance
Company Pvt Ltd.
10.75% 12/08/11.... 100,000 102,726
Cincinnati Bell Inc.
8.25% 10/15/17.... 2,265,000 2,298,975
Citigroup, Inc.
5.00% 09/15/14.... 859,000 828,097
5.13% 05/05/14.... 1,394,000 1,387,461
6.38% 08/12/14.... 1,682,000 1,760,898
8.50% 05/22/19.... 1,777,000 2,051,996
City National Capital Trust I
9.63% 02/01/40.... 638,000 677,626
CME Group Inc.
5.40% 08/01/13.... 570,000 615,152
Comcast Corp.
6.50% 01/15/15.... 685,000 767,442
Community Health Systems, Inc.
8.88% 07/15/15.... 1,000,000 1,035,000
Consolidated Edison Company of
New York Inc.
5.85% 04/01/18.... 528,000 565,566
6.65% 04/01/19.... 528,000 598,325
7.13% 12/01/18.... 6,232,000 7,201,444
COX Communications Inc.
7.13% 10/01/12.... 240,000 266,601 /(h)/
7.75% 11/01/10.... 375,000 392,574 /(h)/
Credit Suisse
6.00% 02/15/18.... 1,814,000 1,898,057
Credit Suisse First Boston
International for CJSC The
EXIM of Ukraine
7.65% 09/07/11.... 600,000 504,000
CVS Caremark Corp.
5.75% 06/01/17.... 264,000 278,629
6.13% 09/15/39.... 1,026,000 1,016,868
6.60% 03/15/19.... 302,000 330,475
DASA Finance Corp.
8.75% 05/29/18.... 1,422,000 1,475,325
Diageo Capital PLC
5.20% 01/30/13.... 454,000 486,032
Diageo Finance BV
3.25% 01/15/15.... 691,000 686,402
Diamond Offshore Drilling, Inc.
5.70% 10/15/39.... 1,696,000 1,650,802
Digicel Group Ltd.
8.25% 09/01/17.... 100,000 97,500 /(b)/
DirecTV Financing Company Inc.
4.75% 10/01/14.... 956,000 974,485 /(b)/
5.88% 10/01/19.... 798,000 811,643 /(b)/
Dolphin Energy Ltd.
5.89% 06/15/19.... 792,000 799,920 /(b)/
PRINCIPAL
AMOUNT VALUE
Dominion Resources, Inc.
5.20% 08/15/19....... $ 188,000 $ 190,931
Dover Corp.
6.50% 02/15/11....... 219,000 231,356 /(h)/
Drummond Company Inc.
9.00% 10/15/14....... 898,000 941,778 /(b)/
Duke Energy Indiana Inc.
6.35% 08/15/38....... 659,000 719,936
Ecopetrol S.A.
7.63% 07/23/19....... 220,000 243,870
Embraer Overseas Ltd.
6.38% 01/15/20....... 295,000 295,000
Empresa Nacional del Petroleo
6.25% 07/08/19....... 1,200,000 1,247,650 /(b)/
Empresas Publicas de Medellin ESP
7.63% 07/29/19....... 200,000 220,000 /(b)/
European Investment Bank
4.88% 01/17/17....... 1,200,000 1,285,880
Exelon Generation Company LLC
5.20% 10/01/19....... 597,000 597,267
6.25% 10/01/39....... 855,000 871,100
Export-Import Bank of Korea
5.88% 01/14/15....... 200,000 214,622
Gaz Capital S.A.
8.13% 07/31/14....... 100,000 106,000 /(b)/
9.25% 04/23/19....... 750,000 836,250
Genworth Financial Inc.
8.63% 12/15/16....... 638,000 661,887
Gerdau Holdings Inc.
7.00% 01/20/20....... 300,000 308,250 /(b)/
GlaxoSmithKline Capital Inc.
4.85% 05/15/13....... 885,000 950,002
Globo Comunicacao e
Participacoes S.A.
7.25% 04/26/22....... 300,000 313,500 /(b)/
HCA Inc.
7.88% 02/15/20....... 786,000 818,423// /(b)/
9.25% 11/15/16....... 1,000,000 1,073,750
HCC Insurance Holdings, Inc.
6.30% 11/15/19....... 352,000 357,519
Health Management Associates, Inc.
6.13% 04/15/16....... 1,478,000 1,385,625
Holcim US Finance Sarl & Cie SCS
6.00% 12/30/19....... 539,000 561,040 /(b)/
Host Hotels & Resorts LP (REIT)
9.00% 05/15/17....... 1,000,000 1,081,250 /(b)/
HSBC Bank USA N.A.
4.63% 04/01/14....... 585,000 610,677
7.00% 01/15/39....... 750,000 840,185
HSBC Finance Corp.
5.00% 06/30/15....... 2,545,000 2,628,995
5.70% 06/01/11....... 1,466,000 1,531,551
6.75% 05/15/11....... 405,000 428,036 /(h)/
HSBC Holdings PLC
6.50% 05/02/36....... 100,000 104,882 /(h)/
6.80% 06/01/38....... 750,000 813,953
Hutchison Whampoa
International 09/16 Ltd.
4.63% 09/11/15....... 1,000,000 1,008,990 /(b)/
See Notes to Schedules of Investments on page 25 and Notes to Financial
Statements on page 32.
17
TOTAL RETURN FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
Hydro Quebec
8.05% 07/07/24..... $ 820,000 $ 1,014,825 /(h)/
Illinois Power Co.
9.75% 11/15/18..... 796,000 989,802
Indo Integrated Energy BV
9.00% 06/01/12..... 300,000 302,861
Ingles Markets Inc.
8.88% 05/15/17..... 2,590,000 2,693,600
Inmarsat Finance PLC
7.38% 12/01/17..... 900,000 920,250 /(b)/
Intelsat Subsidiary Holding
Company Ltd.
8.88% 01/15/15..... 676,000 699,660
Intergas Finance BV
6.88% 11/04/11..... 200,000 204,000
Intergen N.V.
9.00% 06/30/17..... 1,500,000 1,563,750 /(b)/
International Business
Machines Corp.
4.75% 11/29/12..... 1,300,000 1,396,647 /(h)/
International Paper Co.
7.50% 08/15/21..... 1,346,000 1,508,154
Inversiones CMPC S.A.
6.13% 11/05/19..... 300,000 302,280 /(b)/
Johnson & Johnson
5.85% 07/15/38..... 914,000 986,087
JPMorgan Chase & Co.
5.13% 09/15/14..... 1,318,000 1,390,178
6.30% 04/23/19..... 516,000 567,640
JPMorgan Chase Bank
5.88% 06/13/16..... 618,000 648,473
JPMorgan Chase Capital XXVII
7.00% 11/01/39..... 1,009,000 1,017,590
Kazakhstan Temir Zholy Finance BV
6.50% 05/11/11..... 200,000 196,500
KazMunaiGaz Finance Sub BV
9.13% 07/02/18..... 200,000 222,000 /(b)/
11.75% 01/23/15..... 400,000 482,000 /(b)/
KeyBank NA
5.80% 07/01/14..... 1,060,000 1,031,714
Korea Hydro & Nuclear Power
Company Ltd.
6.25% 06/17/14..... 400,000 436,444 /(b)/
Korea National Oil Corp.
5.38% 07/30/14..... 500,000 528,571 /(b)/
Kreditanstalt fuer Wiederaufbau
3.50% 03/10/14..... 2,526,000 2,595,892
4.13% 10/15/14..... 413,000 432,801
4.50% 07/16/18..... 1,360,000 1,404,439
L-3 Communications Corp.
5.88% 01/15/15..... 777,000 776,029
Lincoln National Corp.
8.75% 07/01/19..... 1,149,000 1,312,852
Majapahit Holding BV
7.25% 10/17/11..... 500,000 522,500 /(b)/
7.75% 10/17/16..... 725,000 767,630 /(b)/
7.75% 01/20/20..... 400,000 419,000
McDonald's Corp.
6.30% 03/01/38..... 381,000 420,265
PRINCIPAL
AMOUNT VALUE
Mead Johnson Nutrition Co.
4.90% 11/01/19.... $ 790,000 $ 783,276 /(b)/
Merrill Lynch & Company Inc.
6.05% 08/15/12.... 919,000 984,462
6.88% 04/25/18.... 544,000 586,126
Morgan Stanley
5.05% 01/21/11.... 949,000 984,289
5.63% 09/23/19.... 1,367,000 1,376,993
6.00% 04/28/15.... 533,000 567,763
7.30% 05/13/19.... 756,000 848,935
Morgan Stanley (Series F)
6.63% 04/01/18.... 500,000 540,584
Munich Re America Corp. (Series B)
7.45% 12/15/26.... 315,000 324,457 /(h)/
NAK Naftogaz Ukraine
9.50% 09/30/14.... 200,000 167,893 /(q)/
National Agricultural
Cooperative Federation
5.00% 09/30/14.... 637,000 660,206 /(b)/
NET Servicos de Comunicacao S.A.
7.50% 01/27/20.... 300,000 306,000 /(b)/
Nevada Power Co. (Series I)
6.50% 04/15/12.... 515,000 552,148 /(h)/
Newmont Mining Corp.
5.13% 10/01/19.... 539,000 539,252
6.25% 10/01/39.... 1,061,000 1,062,268
News America Inc.
5.65% 08/15/20.... 481,000 500,843 /(b)/
6.65% 11/15/37.... 956,000 1,009,829
Nexen Inc.
6.20% 07/30/19.... 744,000 787,241
7.50% 07/30/39.... 826,000 946,964
Nisource Finance Corp.
6.13% 03/01/22.... 602,000 614,371
Noble Group Ltd.
6.75% 01/29/20.... 100,000 102,625 /(b)/
NorthWestern Corp.
5.88% 11/01/14.... 200,000 207,457 /(h)/
NRG Energy, Inc.
7.38% 02/01/16.... 1,000,000 1,001,250
Odebrecht Finance Ltd.
7.00% 04/21/20.... 500,000 505,625 /(b)/
Oracle Corp.
5.00% 07/08/19.... 688,000 709,531
Pacific Gas & Electric Co.
5.80% 03/01/37.... 500,000 506,753
Pacific Rubiales Energy Corp.
8.75% 11/10/16.... 100,000 105,000 /(b)/
Pacificorp
6.25% 10/15/37.... 153,000 165,074
Parker Hannifin Corp.
5.50% 05/15/18.... 830,000 874,388
Pemex Finance Ltd.
9.03% 02/15/11.... 66,250 68,238 /(h)/
Petrobras International Finance Co.
5.75% 01/20/20.... 750,000 762,965
Petroleos Mexicanos
4.88% 03/15/15.... 880,000 876,744 /(b)/
See Notes to Schedules of Investments on page 25 and Notes to Financial
Statements on page 32.
18
TOTAL RETURN FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
Petroleum Company of Trinidad &
Tobago Ltd.
6.00% 05/08/22........ $ 900,000 $ 837,000 /(b)/
Petronas Capital Ltd.
5.25% 08/12/19........ 400,000 400,187 /(b)/
Petronas Global Sukuk Ltd.
4.25% 08/12/14........ 300,000 300,698 /(b)/
Pfizer Inc.
6.20% 03/15/19........ 128,000 142,288
7.20% 03/15/39........ 316,000 386,132
Pioneer Natural Resources Co.
7.50% 01/15/20........ 605,000 605,275
Plains All American Pipeline LP
4.25% 09/01/12........ 1,035,000 1,068,103
PNC Funding Corp.
4.25% 09/21/15........ 684,000 697,752
Potomac Electric Power Co.
7.90% 12/15/38........ 233,000 297,642
Power Sector Assets & Liabilities
Management Corp.
7.39% 12/02/24........ 100,000 103,000 /(b)/
Principal Financial Group, Inc.
8.88% 05/15/19........ 475,000 547,922
Prudential Financial, Inc.
3.63% 09/17/12........ 342,000 347,059
5.15% 01/15/13........ 792,000 833,168
5.70% 12/14/36........ 485,000 438,210 /(h)/
6.10% 06/15/17........ 415,000 429,572
7.38% 06/15/19........ 685,000 767,999
Public Service Company of Colorado
7.88% 10/01/12........ 382,000 438,305 /(h)/
Qtel International Finance Ltd.
6.50% 06/10/14........ 500,000 540,700 /(b)/
7.88% 06/10/19........ 500,000 560,487 /(b)/
QVC Inc.
7.50% 10/01/19........ 1,000,000 1,020,000 /(b)/
Qwest Communications
International Inc.
8.00% 10/01/15........ 1,000,000 1,027,500 /(b)/
RailAmerica, Inc.
9.25% 07/01/17........ 1,348,000 1,433,935
Republic Services Inc.
5.50% 09/15/19........ 481,000 488,432 /(b)/
5.25% 11/15/21........ 637,000 626,316 /(b)/
Reynolds Group DL Escrow Inc.
7.75% 10/15/16........ 2,470,000 2,525,575 /(b)/
Royal Bank of Scotland Group PLC
6.40% 10/21/19........ 461,000 459,520
RSHB Capital SA for OJSC Russian
Agricultural Bank
6.97% 09/21/16........ 200,000 196,500 /(i)/
SBA Telecommunications Inc.
8.00% 08/15/16........ 296,000 309,320 /(b)/
8.25% 08/15/19........ 444,000 470,640 /(b)/
Simon Property Group LP (REIT)
6.75% 05/15/14........ 824,000 878,120
Southern California Edison Co.
5.50% 08/15/18........ 1,009,000 1,077,113
PRINCIPAL
AMOUNT VALUE
Southern Copper Corp.
7.50% 07/27/35...... $ 100,000 $ 99,084
Spirit Aerosystems Inc.
7.50% 10/01/17...... 1,000,000 985,000 /(b)/
Talecris Biotherapeutics Holdings Corp.
7.75% 11/15/16...... 1,500,000 1,522,500 /(b)/
Talisman Energy Inc.
7.75% 06/01/19...... 732,000 859,666
Target Corp.
7.00% 01/15/38...... 553,000 645,212
Teachers Insurance & Annuity
Association of America
6.85% 12/16/39...... 768,000 793,911 /(b)/
Telecom Italia Capital S.A.
6.20% 07/18/11...... 989,000 1,046,821
7.18% 06/18/19...... 960,000 1,070,268
Telefonica Emisiones SAU
5.86% 02/04/13...... 600,000 648,280
Tesoro Corp. (Series B)
6.63% 11/01/15...... 1,770,000 1,681,500
The Allstate Corp.
7.45% 05/16/19...... 502,000 583,235
The Bear Stearns Companies LLC
6.95% 08/10/12...... 1,250,000 1,396,595 /(h)/
The Dow Chemical Co.
5.90% 02/15/15...... 720,000 773,695
8.55% 05/15/19...... 346,000 412,828
The Goldman Sachs Group, Inc.
6.00% 05/01/14...... 1,008,000 1,102,518
6.60% 01/15/12...... 264,000 287,005
7.50% 02/15/19...... 214,000 249,482
The Kroger Co.
6.15% 01/15/20...... 1,096,000 1,172,992
The Procter & Gamble Co.
5.50% 02/01/34...... 311,000 318,109
The Royal Bank of Scotland PLC
4.88% 08/25/14...... 460,000 466,295 /(b)/
The Toledo Edison Company
7.25% 05/01/20...... 324,000 369,727
The Travelers Companies, Inc.
5.80% 05/15/18...... 2,024,000 2,157,038
The Williams Companies, Inc.
7.88% 09/01/21...... 955,000 1,095,404
Thermo Fisher Scientific, Inc.
3.25% 11/18/14...... 636,000 623,536 /(b)/
Thomson Reuters Corp.
5.95% 07/15/13...... 821,000 898,758
Ticketmaster Entertainment, Inc.
10.75% 08/01/16...... 500,000 538,750
Time Warner Cable Inc.
6.75% 07/01/18...... 1,864,000 2,047,721
7.50% 04/01/14...... 622,000 716,655
8.75% 02/14/19...... 272,000 331,507
Time Warner Inc.
5.88% 11/15/16...... 897,000 968,319
TNK-BP Finance S.A.
6.13% 03/20/12...... 300,000 307,500
Transocean Inc.
6.00% 03/15/18...... 501,000 534,537
See Notes to Schedules of Investments on page 25 and Notes to Financial
Statements on page 32.
19
TOTAL RETURN FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
United Technologies Corp.
6.13% 07/15/38......... $ 274,000 $ 296,840
UPC Germany GmbH
8.13% 12/01/17......... 700,000 707,875 /(b)/
USB Capital XIII Trust
6.63% 12/15/39......... 639,000 649,441
Vale Overseas Ltd.
6.88% 11/10/39......... 156,000 157,049
Valero Energy Corp.
6.63% 06/15/37......... 932,000 874,525
Vedanta Resources PLC
6.63% 02/22/10......... 830,000 832,075
9.50% 07/18/18......... 100,000 101,500 /(b)/
Verizon Communications Inc.
5.25% 04/15/13......... 2,500,000 2,694,925
6.35% 04/01/19......... 430,000 474,389
6.40% 02/15/38......... 210,000 219,536
6.90% 04/15/38......... 536,000 594,072
8.75% 11/01/18......... 1,998,000 2,495,540
Verizon Global Funding Corp.
7.25% 12/01/10......... 788,000 832,739
Verizon Wireless Capital LLC
5.55% 02/01/14......... 1,500,000 1,627,917
VIP Finance Ireland Ltd. for OJSC
Vimpel Communications (Class A)
8.38% 04/30/13......... 400,000 423,000 /(b)/
Virgin Media Finance PLC
8.38% 10/15/19......... 700,000 720,125
9.50% 08/15/16......... 1,700,000 1,825,375
Voto-Votorantim Overseas Trading
Operations N.V.
6.63% 09/25/19......... 300,000 300,750 /(b)/
VTB Capital SA for Vneshtorgbank
6.32% 02/04/15......... 200,000 198,040 /(i)/
Walgreen Co.
5.25% 01/15/19......... 1,131,000 1,200,226
WEA Finance LLC
6.75% 09/02/19......... 688,000 738,735 /(b)/
7.50% 06/02/14......... 1,028,000 1,156,803 /(b)/
Westpac Banking Corp.
4.88% 11/19/19......... 1,272,000 1,255,470
Woodside Finance Ltd.
4.50% 11/10/14......... 1,134,000 1,144,111 /(b)/
Wyeth
5.50% 03/15/13......... 1,364,000 1,483,061
XL Capital Ltd.
5.25% 09/15/14......... 1,520,000 1,488,568
Xstrata Finance Canada Ltd.
5.80% 11/15/16......... 685,275 702,377 /(b)/
XTO Energy Inc.
6.38% 06/15/38......... 418,000 470,505
6.50% 12/15/18......... 236,000 269,677
211,624,706
NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.6%
Banc of America Commercial
Mortgage Inc. (Class A)
5.66% 06/10/49......... 1,770,000 1,479,434
PRINCIPAL
AMOUNT VALUE
Banc of America Commercial
Mortgage Inc. (Class C)
5.70% 04/10/49..... $ 400,000 $ 86,452 /(h,I,n)/
Banc of America Funding Corp.
5.37% 02/20/36..... 7,547 3 /(h,I,n)/
5.53% 02/20/36..... 217,549 7,984 /(h,I,n)/
5.60% 03/20/36..... 191,455 10,454 /(h,I,n)/
Banc of America Mortgage
Securities Inc. (Class B)
5.16% 01/25/36..... 196,773 16,553 /(h,I,n)/
5.52% 02/25/36..... 157,001 29,758 /(h,I,n)/
Bear Stearns Commercial
Mortgage Securities
5.24% 12/11/38..... 580,000 472,778
5.33% 02/11/44..... 980,000 845,715
5.41% 03/11/39..... 1,000,000 1,015,055 /(h,i)/
5.46% 03/11/39..... 600,000 365,870 /(i)/
5.48% 10/12/41..... 1,500,000 1,517,763 /(h)/
5.69% 06/11/50..... 1,400,000 1,225,808 /(i)/
5.72% 06/11/40..... 710,000 354,905 /(i)/
6.21% 11/11/17..... 870,000 426,765 /(i)/
Bear Stearns Commercial
Mortgage Securities (Class A)
5.46% 04/12/38..... 1,175,000 1,192,380 /(h,i)/
5.54% 10/12/41..... 3,590,000 3,569,617
5.92% 06/11/50..... 620,000 447,650 /(i)/
Citigroup Commercial Mortgage
Trust (Class A)
5.62% 10/15/48..... 1,770,000 1,686,149
Countrywide Alternative Loan
Trust (Class B)
6.00% 08/25/36..... 23,404 401 /(h,n)/
Credit Suisse Mortgage
Capital Certificates
5.47% 09/15/39..... 682,000 584,148 /(h)/
Credit Suisse Mortgage Capital
Certificates (Class C)
5.65% 02/25/36..... 109,779 7,976 /(h,i,n)/
Crusade Global Trust (Class A)
0.48% 01/17/34..... 1,260,577 1,252,659 /(h,i)/
CS First Boston Mortgage
Securities Corp.
5.34% 10/25/35..... 164,456 13,156 /(h,i,n)/
Greenwich Capital Commercial
Funding Corp.
5.44% 03/10/39..... 1,070,000 945,393
5.60% 12/10/49..... 1,110,000 1,099,356
GS Mortgage Securities Corp II
5.56% 11/10/39..... 1,060,000 928,076
Impac CMB Trust
0.49% 04/25/35..... 244,173 134,863 /(h,i)/
Indymac INDA Mortgage Loan Trust
5.22% 01/25/36..... 99,488 1,194 /(h,i,n)/
Indymac INDA Mortgage Loan
Trust (Class B)
5.22% 01/25/36..... 107,187 6,040 /(h,i,n)/
JP Morgan Chase Commercial
Mortgage Securities Corp.
5.34% 08/12/37..... 1,110,000 1,095,367 /(i)/
See Notes to Schedules of Investments on page 25 and Notes to Financial
Statements on page 32.
20
TOTAL RETURN FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
5.50% 06/12/47............. $ 350,000 $ 155,852 /(i)/
6.07% 02/12/51............. 1,720,000 1,353,003
JP Morgan Chase Commercial
Mortgage Securities Corp.
(Class A)
5.90% 02/12/51............. 1,410,000 1,020,546 /(i)/
LB-UBS Commercial
Mortgage Trust
0.67% 09/15/39............. 18,160,515 367,810 /(h,i,n)/
0.72% 01/18/12............. 3,300,686 37,523 /(h,i,n)/
4.95% 09/15/30............. 630,000 610,473
5.66% 03/15/39............. 1,000,000 926,371 /(h,i)/
5.87% 09/15/45............. 1,770,000 1,553,546 /(i)/
6.15% 04/15/41............. 320,000 187,240
LB-UBS Commercial Mortgage
Trust (Class F)
6.24% 07/15/40............. 475,000 79,420 /(i,n)/
MASTR Alternative Loans Trust
5.00% 08/25/18............. 33,861 3,332 /(g,h,n,p)/
Medallion Trust (Class A)
0.31% 08/22/36............. 826,839 784,436 /(i)/
MLCC Mortgage Investors Inc.
5.04% 02/25/36............. 164,986 6,319 /(h,i,n)/
Morgan Stanley Capital I
5.16% 10/12/52............. 2,000,000 1,959,416 /(i)/
5.28% 12/15/43............. 1,500,000 1,518,848 /(h)/
5.33% 12/15/43............. 1,500,000 1,391,929 /(h)/
5.36% 11/12/41............. 2,625,000 2,161,065
5.39% 11/12/41............. 2,000,000 1,123,277 /(h,i)/
5.69% 04/15/49............. 925,000 779,437 /(i)/
5.71% 07/12/44............. 300,000 300,319 /(h)/
Morgan Stanley Capital I (Class
A)
1.00% 03/12/44............. 1,660,000 1,600,833 /(i)/
MortgageIT Trust (Class A)
0.53% 08/25/35............. 1,693,799 1,029,547 /(i)/
Opteum Mortgage
Acceptance Corp.
0.53% 02/25/35............. 121,569 79,020 /(h,i)/
Residential Accredit Loans Inc.
6.00% 01/25/36............. 179,071 4,281 /(h,n)/
Residential Funding Mortgage
Securities I
5.75% 01/25/36............. 200,634 14,949 /(h,n)/
Wachovia Bank Commercial
Mortgage Trust
5.25% 12/15/43............. 1,100,000 1,062,759
Wachovia Bank Commercial
Mortgage Trust (Class A)
5.99% 06/15/45............. 350,000 210,829 /(i)/
WaMu Mortgage Pass
Through Certificates
0.57% 01/25/45............. 94,797 58,652 /(i)/
Wells Fargo Mortgage Backed
Securities Trust
5.39% 08/25/35............. 468,351 24,999 /(h,i,n)/
5.50% 01/25/36 - 03/25/36.. 561,108 62,643 /(h,n)/
Wells Fargo Mortgage Backed
Securities Trust (Class B)
5.50% 03/25/36............. 943,754 194,151 /(h,n)/
41,482,547
PRINCIPAL
AMOUNT VALUE
SOVEREIGN BONDS -- 0.4%
Democratic Socialist Republic of
Sri Lanka
7.40% 01/22/15........ $ 100,000 $ 103,750 /(b)/
8.25% 10/24/12........ 100,000 104,990
Government of Argentina
2.50% 12/31/38........ 135,339 47,030
Government of Belize
4.25% 02/20/29........ 135,400 74,470 /(j)/
Government of Brazil
5.63% 01/07/41........ 300,000 282,750
5.88% 01/15/19........ 400,000 426,000
8.00% 01/15/18........ 500,556 571,134 /(h)/
Government of Colombia
6.13% 01/18/41........ 500,000 463,750
Government of Croatia
6.75% 11/05/19........ 400,000 430,830 /(b)/
Government of Dominican
9.50% 09/27/11........ 261,727 272,196
Government of Korea
5.75% 04/16/14........ 221,000 241,566
Government of Lebanon
4.00% 12/31/17........ 114,750 106,144 /(a)/
Government of Manitoba Canada
4.90% 12/06/16........ 330,000 349,027 /(h)/
Government of Panama
5.20% 01/30/20........ 300,000 300,750
Government of Peruvian
6.55% 03/14/37........ 925,000 962,000
7.35% 07/21/25........ 100,000 114,500
Government of Philippines
6.50% 01/20/20........ 300,000 324,750
Government of Poland
6.38% 07/15/19........ 222,000 241,466
Government of Qatar
4.00% 01/20/15........ 100,000 100,250 /(b)/
5.25% 01/20/20........ 400,000 403,000 /(b)/
6.40% 01/20/40........ 100,000 100,500 /(b)/
Government of Quebec Canada
7.50% 09/15/29........ 495,000 622,759
Government of Turkey
7.50% 07/14/17........ 1,000,000 1,135,000
Government of Uruguay
6.88% 09/28/25........ 220,478 231,502
Government of Venezuela
5.38% 08/07/10........ 680,000 663,000
10.75% 09/19/13........ 517,000 454,960
Korea Expressway Corp.
4.50% 03/23/15........ 400,000 407,552 /(b)/
Republic of Ghana
8.50% 10/04/17........ 200,000 204,500 /(b)/
Republic of Lithuania
6.75% 01/15/15........ 400,000 407,246 /(b)/
Republic of the Philippines
6.38% 10/23/34........ 200,000 196,000
10,343,372
See Notes to Schedules of Investments on page 25 and Notes to Financial
Statements on page 32.
21
TOTAL RETURN FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
MUNICIPAL BONDS AND NOTES -- 0.1%
American Municipal
Power-Ohio Inc.
6.05% 02/15/43..... $ 550,000 $ 515,169
Dallas Area Rapid Transit
6.00% 12/01/44..... 425,000 435,209
New Jersey State
Turnpike Authority
7.41% 01/01/40..... 200,000 223,952
New Jersey Transportation Trust
Fund Authority
6.88% 12/15/39..... 620,000 636,883
1,811,213
TOTAL BONDS AND NOTES
(COST $570,659,891)........... 574,007,805
NUMBER OF
SHARES VALUE
-------------------------------------------------------------------
-------------------------------------------------------------------
EXCHANGE TRADED FUNDS -- 0.5%
-------------------------------------------------------------------
Financial Select Sector
SPDR Fund 168,022 2,417,837 /(l)/
Industrial Select Sector
SPDR Fund 330,510 9,184,873 /(l)/
iShares MSCI Emerging Markets
Index Fund 8,445 350,468 /(o)/
TOTAL EXCHANGE TRADED FUNDS
(COST $16,715,172)............ 11,953,178
-------------------------------------------------------------------
OTHER INVESTMENTS -- 0.2%
-------------------------------------------------------------------
GEI Investment Fund
(COST $7,373,219)............. 5,603,647 /(k)/
TOTAL INVESTMENTS IN SECURITIES
(COST $2,110,825,966)......... 2,174,821,145
-------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 17.0%
-------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 5.4%
GE Money Market Fund
Institutional Class
0.01% 139,018,294 /(d,m)/
PRINCIPAL
AMOUNT VALUE
-------------------------------------------------------------------
TIME DEPOSIT -- 0.0%*
State Street Corp.
0.01% 01/04/10..... $ 125,973 125,973 /(e)/
U.S. TREASURIES -- 5.1%
U.S. Treasury Bill
0.06% 03/18/10..... 2,100,000 2,099,924 /(d)/
0.09% 04/15/10..... 49,000,000 48,991,866 /(d)/
0.13% 05/20/10..... 57,500,000 57,466,478 /(d)/
0.14% 06/10/10..... 6,000,000 5,995,170 /(d)/
PRINCIPAL
AMOUNT VALUE
U.S. Treasury Notes
2.00% 02/28/10.... $11,500,000 $ 11,535,489
2.13% 01/31/10.... 4,500,000 4,507,385
130,596,312
FEDERAL AGENCIES -- 6.5%
Federal Home Loan Bank
Discount Notes
0.05% 02/12/10.... 12,500,000 12,499,250 /(d)/
0.06% 03/05/10.... 19,105,000 19,102,287 /(d)/
0.10% 03/19/10.... 10,000,000 9,998,270 /(d)/
0.11% 03/24/10.... 25,000,000 24,995,400 /(d)/
Federal Home Loan Mortgage
Corp. Discount Notes
0.10% 04/19/10.... 54,700,000 54,680,144 /(d)/
Federal National Mortgage
Assoc. Discount Notes
0.02% 01/14/10.... 7,000,000 6,999,944 /(d)/
0.03% 01/22/10.... 28,000,000 27,999,664 /(d)/
0.05% 02/22/10.... 1,035,000 1,034,923 /(d)/
0.11% 03/24/10.... 9,500,000 9,498,252 /(d)/
166,808,134
TOTAL SHORT-TERM INVESTMENTS
(COST $436,529,887)........ 436,548,713
TOTAL INVESTMENTS
(COST $2,547,355,853)...... 2,611,369,858
LIABILITIES IN EXCESS OF OTHER
ASSETS, NET -- (1.6)% (41,000,404)
--------------
NET ASSETS -- 100.0%........ $2,570,369,454
==============
---------------------------------------------------------------
OTHER INFORMATION
---------------------------------------------------------------
The GEI Total Return Fund had the following long futures contracts open at
December 31, 2009:
NUMBER CURRENT UNREALIZED
EXPIRATION OF NOTIONAL APPRECIATION/
DESCRIPTION DATE CONTRACTS VALUE (DEPRECIATION)
-------------------------------------------------------------------
DJ Euro Stoxx 50
Index Futures March 2010 30 $ 1,279,222 $ 17,084
FTSE 100 Index
Futures March 2010 7 606,061 7,120
Russell 2000 Mini
Index Futures March 2010 820 51,159,800 1,526,548
S&P 500 Emini
Index Futures March 2010 2645 146,890,075 1,592,516
S&P Midcap 400
Emini Index
Futures March 2010 9 652,410 (4,417)
Topix Index
Futures March 2010 4 388,635 (1,245)
See Notes to Schedules of Investments on page 25 and Notes to Financial
Statements on page 32.
22
TOTAL RETURN FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
NUMBER CURRENT UNREALIZED
EXPIRATION OF NOTIONAL APPRECIATION/
DESCRIPTION DATE CONTRACTS VALUE (DEPRECIATION)
------------------------------------------------------------------
2 Yr. U.S.Treasury
Notes Futures March 2010 63 13,624,734 (20,241)
5 Yr. U.S.Treasury
Notes Futures March 2010 197 22,533,414 (368,378)
The GEI Total Return Fund had the following short futures contracts open at
December 31, 2009:
NUMBER CURRENT UNREALIZED
EXPIRATION OF NOTIONAL APPRECIATION/
DESCRIPTION DATE CONTRACTS VALUE (DEPRECIATION)
----------------------------------------------------------------------
10 Yr. U.S.Treasury
Notes Futures March 2010 262 $(30,248,719) $ 695,466
S&P 500 Emini Index
Futures March 2010 2 (111,070) 182
----------
$3,444,635
==========
The GEI Total Return Fund was invested in the following countries at
December 31, 2009: (unaudited)
PERCENTAGE (BASED ON
COUNTRY MARKET VALUE)
------- --------------------
United States.. 69.70%
United Kingdom. 4.49%
Japan.......... 3.62%
Switzerland.... 3.16%
France......... 3.08%
Germany........ 2.44%
Canada......... 2.12%
Brazil......... 1.58%
China.......... 1.15%
South Korea.... 1.07%
Spain.......... 1.05%
Taiwan......... 0.85%
Netherlands.... 0.68%
Italy.......... 0.64%
Australia...... 0.60%
Russia......... 0.49%
South Africa... 0.34%
India.......... 0.34%
Hong Kong...... 0.33%
Ireland........ 0.21%
Luxembourg..... 0.20%
Mexico......... 0.20%
Cayman Islands. 0.19%
Sweden......... 0.16%
Chile.......... 0.14%
Denmark........ 0.11%
Turkey......... 0.10%
Finland........ 0.10%
Indonesia...... 0.09%
Philippines.... 0.07%
Singapore...... 0.06%
Peru........... 0.06%
Malaysia....... 0.06%
Israel......... 0.05%
PERCENTAGE (BASED ON
COUNTRY MARKET VALUE)
------- --------------------
Czech Republic....... 0.04%
Venezuela............ 0.04%
United Arab Emirates. 0.04%
Kazakhstan........... 0.04%
Egypt................ 0.04%
Bermuda.............. 0.03%
Honduras............. 0.03%
Colombia............. 0.03%
Austria.............. 0.03%
Qatar................ 0.02%
Thailand............. 0.02%
Croatia.............. 0.02%
Lithuania............ 0.02%
Netherland Antilles.. 0.01%
Dominican Republic... 0.01%
El Salvador.......... 0.01%
Jamaica.............. 0.01%
Poland............... 0.01%
Sri Lanka............ 0.01%
Ghana................ 0.01%
Lebanon.............. 0.00%
Belize............... 0.00%
Argentina............ 0.00%
------
100.00%
======
The GEI Total Return Fund was invested in the following industries at
December 31, 2009:
PERCENTAGE (BASED ON
INDUSTRY MARKET VALUE)
-------- --------------------
Short-Term.......................... 16.72%
Corporate Notes..................... 8.10%
Agency Mortgage Backed.............. 6.30%
Commercial Banks.................... 4.50%
U.S. Treasuries..................... 4.50%
Oil, Gas & Consumable Fuels......... 4.26%
Capital Markets..................... 2.89%
Communications Equipment............ 2.53%
Metals & Mining..................... 2.43%
Insurance........................... 2.24%
Pharmaceuticals..................... 2.24%
Chemicals........................... 2.09%
Software............................ 1.95%
Healthcare Equipment & Supplies..... 1.94%
Wireless Telecommunication Services. 1.93%
Media............................... 1.77%
Semiconductors & Semiconductor
Equipment.......................... 1.77%
Specialty Retail.................... 1.76%
Energy Equipment & Services......... 1.68%
Non-Agency Collateralized Mortgage
Obligations........................ 1.59%
Food Products....................... 1.59%
Biotechnology....................... 1.53%
Diversified Financial Services...... 1.49%
IT Services......................... 1.44%
Healthcare Providers & Services..... 1.25%
Commercial Services & Supplies...... 1.10%
Industrial Conglomerates............ 1.06%
See Notes to Schedules of Investments on page 25 and Notes to Financial
Statements on page 32.
23
TOTAL RETURN FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
PERCENTAGE (BASED ON
INDUSTRIES MARKET VALUE)
---------- --------------------
Beverages.............................. 1.01%
Electric Utilities..................... 0.98%
Aerospace & Defense.................... 0.95%
Household Products..................... 0.93%
Multi-Utilities........................ 0.86%
Computers & Peripherals................ 0.84%
Food & Staples Retailing............... 0.77%
Automobiles............................ 0.76%
Internet Software & Services........... 0.72%
Real Estate Management &
Development........................... 0.71%
Asset Backed........................... 0.70%
Diversified Telecommunication Services. 0.68%
Machinery.............................. 0.65%
Life Sciences Tools & Services......... 0.64%
Multiline Retail....................... 0.53%
Electrical Equipment................... 0.51%
Construction & Engineering............. 0.49%
Exchange Traded Funds.................. 0.46%
Hotels Restaurants & Leisure........... 0.41%
Sovereign Bonds........................ 0.40%
Electronic Equipment, Instruments &
Components............................ 0.38%
Personal Products...................... 0.36%
Textiles Apparel & Luxury Goods........ 0.36%
Agency Collateralized Mortgage
Obligations........................... 0.32%
Other Investments...................... 0.21%
Construction Materials................. 0.21%
Professional Services.................. 0.17%
Tobacco................................ 0.16%
Household Durables..................... 0.15%
Building Products...................... 0.14%
Water Utilities........................ 0.12%
Real Estate Investment Trusts (REIT's). 0.11%
Road & Rail............................ 0.11%
Thrifts & Mortgage Finance............. 0.11%
Trading Companies & Distributors....... 0.10%
Paper & Forest Products................ 0.07%
Gas Utilities.......................... 0.07%
Auto Components........................ 0.05%
Municipal Bonds and Notes.............. 0.07%
Marine................................. 0.04%
Transportation Infrastructure.......... 0.02%
Independent Power Producers & Energy
Traders............................... 0.02%
------
100.00%
======
See Notes to Schedules of Investments on page 25 and Notes to Financial
Statements on page 32.
24
Notes to Schedules of Investments December 31, 2009
- ---------------------------------------------------------------------
The views expressed in this document reflect our judgment as of the publication
date and are subject to change at any time without notice. The securities cited
may not represent current or future holdings and should not be considered as a
recommendation to purchase or sell a particular security. See the prospectus
for complete descriptions of investment objectives, policies, risks and
permissible investments.
(a)Non-income producing security.
(b)Pursuant to Rule 144A of the Securities Act of 1933, these securities may be
resold in transactions exempt from registration, normally to qualified
institutional buyers. At December 31, 2009, these securities amounted to
$57,473,667 or 2.24% of the net assets of the GE Investments Total Return
Fund. These securities have been determined to be liquid using procedures
established by the Board of Trustees.
(c)Settlement is on a delayed delivery or when-issued basis with final maturity
to be announced (TBA) in the future.
(d)Coupon amount represents effective yield.
(e)State Street Corp. is the parent company of State Street Bank & Trust Co.,
the Fund's custodian and accounting agent.
(f)Principal only securities represent the right to receive the monthly
principal payments on an underlying pool of mortgages. No payments of
interest on the pool are passed through to the "principal only" holder.
(g)Interest only securities represent the right to receive the monthly interest
payments on an underlying pool of mortgages. Payments of principal on the
pool reduce the value of the "interest only" holding.
(h)At December 31, 2009, all or a portion of this security was pledged to cover
collateral requirements for futures, options, forward foreign currency
contracts and/or TBA's.
(i)Variable or floating rate security. The stated rate represents the rate at
December 31, 2009.
(j)Step coupon bond. Security becomes interest bearing at a future date.
(k)GE Asset Management Incorporated (GEAM) is the investment advisor of the
Fund and also serves as investment advisor of the GEI Investment Fund.
(l)Sponsored by SSgA Funds Management, Inc., an affiliate of State Street
Bank & Trust Co., the Fund's custodian and accounting agent.
(m)GEAM, the investment adviser of the Fund, also serves as investment adviser
of the GE Funds-GE Money Market Fund
(n)Illiquid securities. At December 31, 2009, these securities amounted to
$986,040 or 0.04% of net assets for the GE Investments Total Return Fund.
These securities have been determined to be illiquid using procedures
established by the Board of Trustees.
(o)Sponsored by Barclay's Global Investors, an affiliate of State Street Bank &
Trust Co., the Fund's custodian and accounting agent.
(p)Coupon amount represents the coupon of the underlying mortgage securities on
which monthly interest payments are based.
(q)Securities in default.
* Less than 0.1%.
** Amount is less than $ 0.01.
+ Percentages are based on net assets as of December 31, 2009.
Abbreviations:
ADR American Depository Receipt
GDR Global Depository Receipt
REGD. Registered
REIT Real Estate Investment Trust
REMIC Real Estate Mortgage Investment Conduit
SPDR Standard & Poors Depository Receipts
STRIPS Separate Trading of Registered Interest and
Principal of Security
TBA To be Announced
25
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
TOTAL RETURN FUND
------------------------------------------------------------------------------
CLASS 1
------------------------------------------------------------------------------
12/31/09 12/31/08/(D)/ 12/31/07 12/31/06 12/31/05
---------- ------------ ---------- ---------- --------
INCEPTION DATE -- -- -- -- 7/1/85
Net asset value, beginning of period....... $ 12.75 $ 18.61 $ 17.69 $ 16.04 $ 15.97
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income.................... 0.20** 0.35** 0.35 0.36 0.23
Net realized and unrealized
gains/(losses) on investments........... 2.45 (5.80) 1.71 1.84 0.36
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM
INVESTMENT OPERATIONS..................... 2.65 (5.45) 2.06 2.20 0.59
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.................... 0.19 0.34 0.35 0.31 0.23
Net realized gains....................... -- 0.07 0.79 0.24 0.29
Return of capital........................ 0.03 -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS........................ 0.22 0.41 1.14 0.55 0.52
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period............. $ 15.18 $ 12.75 $ 18.61 $ 17.69 $ 16.04
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN/(A)/.......................... 20.81% (29.28)% 11.68%/(B)/ 13.75% 3.67%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands). $1,131,038 $ 989,975 $1,525,002 $1,390,230 $959,531
Ratios to average net assets:
Net investment income.................. 1.47% 2.16% 2.20% 2.33% 1.89%
Net Expenses........................... 0.67%/(b)(c)/ 0.51%/(b)(c)/ 0.52%/(c)/ 0.48%/(c)/ 0.45%
Gross Expenses......................... 0.70% 0.55% 0.56% 0.53% 0.45%
Portfolio turnover rate................ 174% 203% 176% 138% 146%
------------------------------------------------------------- ------------------
CLASS 2
------------------------------------------------------------ ------------------
12/31/09 12/31/08/(D)/ 12/31/07 12/31/06 12/31/09
-------- ------------ -------- -------- - ----------
INCEPTION DATE -- -- -- 5/1/06 --
Net asset value, beginning of
period.......................... $ 12.71 $ 18.56 $ 17.68 $ 17.03 $ 12.73
INCOME/(LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income.......... 0.19** 0.35** 0.38 0.26 0.17**
Net realized and unrealized
gains/(losses) on investments. 2.45 (5.80) 1.67 0.94 2.45
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM
INVESTMENT OPERATIONS........... 2.64 (5.45) 2.05 1.20 2.62
- ----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.......... 0.19 0.33 0.38 0.31 0.17
Net realized gains............. -- 0.07 0.79 0.24 --
Return of capital.............. 0.03 -- -- -- 0.03
- ----------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS.............. 0.22 0.40 1.17 0.55 0.20
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period... $ 15.13 $ 12.71 $ 18.56 $ 17.68 $ 15.15
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN/(A)/................ 20.76% (29.33)% 11.63%/(B)/ 7.05% 20.57%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)................ $18,140 $ 12,830 $15,281 $ 1 $1,421,191
Ratios to average net assets:
Net investment income........ 1.41% 2.11% 1.75% 2.33% 1.26%
Net Expenses................. 0.72%/(b)(c)/ 0.56%/(b)(c)/ 0.56%/(c)/ 0.57%/(c)/ 0.87%/(b)(c)/
Gross Expenses............... 0.75% 0.60% 0.59% 0.64% 0.91%
Portfolio turnover rate...... 174% 203% 176% 138% 174%
--------------------------------------------------
CLASS 3
--------------------------------------------------
12/31/08/(D)/ 12/31/07 12/31/06
------------ ---------- --------
INCEPTION DATE -- -- 5/1/06
Net asset value, beginning of
period.......................... $ 18.59 $ 17.69 $ 17.03
INCOME/(LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income.......... 0.34** 0.35 0.12
Net realized and unrealized
gains/(losses) on investments. (5.80) 1.69 1.10
- -----------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM
INVESTMENT OPERATIONS........... (5.46) 2.04 1.22
- -----------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.......... 0.33 0.35 0.32
Net realized gains............. 0.07 0.79 0.24
Return of capital.............. -- -- --
- -----------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS.............. 0.40 1.14 0.56
- -----------------------------------------------------------------------------------
Net asset value, end of period... $ 12.73 $ 18.59 $ 17.69
- -----------------------------------------------------------------------------------
TOTAL RETURN/(A)/................ (29.37)% 11.56%/(B)/ 7.17%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)................ $1,110,117 $1,173,708 $396,349
Ratios to average net assets:
Net investment income........ 2.05% 2.04% 2.09%
Net Expenses................. 0.61%/(b)(c)/ 0.61%/(c)/ 0.62%/(c)/
Gross Expenses............... 0.65% 0.65% 0.69%
Portfolio turnover rate...... 203% 176% 138%
See Notes to Financial Statements.
26
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(a)Total returns are historical and assume changes in share price, reinvestment
of dividends and capital gains distributions and do not include the effect
of insurance contract charges.
(b)Reflects GEAM's waiver of a portion of the Fund's management fee in an
amount equal to the management fee earned by GEAM with respect to the Fund's
investment in the GE Funds - GE Money Market Fund ("GE Money Market Fund").
(c)Reflects GEAM's contractual arrangement with GE Investments Funds, Inc. to
limit the Fund's total operating expenses of each class share (excluding
class specific expenses) to 0.32% of the average daily net assets of the
Fund attributable to such class share on an annual basis. Please see Note 4
of the Notes to Financial Statements for further details.
(d)Less than $0.01 per share of the distribution paid was from Return of
Capital.
**Per share values have been calculated using the average share method.
See Notes to Financial Statements.
27
Statement of Assets TOTAL
and Liabilities DECEMBER 31, 2009 RETURN
FUND
- ------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market (cost $2,103,452,747)........ $2,169,217,498
Investments in affiliated securities, at market (cost $7,373,219). 5,603,647
Short-term Investments at market (cost $297,511,593).............. 297,530,419
Short-term affiliated investments (at amortized cost)............. 139,018,294
Foreign cash (cost $103,118)...................................... 103,150
Receivable for investments sold................................... 4,595,456
Income receivables................................................ 6,831,339
Receivable for fund shares sold................................... 1,607,139
Variation margin receivable....................................... 45,168
Other assets...................................................... 16,122,395
- ------------------------------------------------------------------------------------
TOTAL ASSETS.................................................... 2,640,674,505
- ------------------------------------------------------------------------------------
LIABILITIES
Distribution payable to shareholders.............................. 559
Payable for investments purchased................................. 64,628,252
Payable for fund shares redeemed.................................. 1,062,819
Payable to GEAM................................................... 1,427,214
Accrued other expenses............................................ 1,096,994
Variation margin payable.......................................... 2,089,213
- ------------------------------------------------------------------------------------
TOTAL LIABILITIES............................................... 70,305,051
- ------------------------------------------------------------------------------------
NET ASSETS.......................................................... $2,570,369,454
- ------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital paid in................................................... 2,844,471,960
Undistributed (distribution in excess of) net investment income... (388,440)
Accumulated net realized gain (loss).............................. (341,174,596)
Net unrealized appreciation/(depreciation) on:
Investments..................................................... 64,014,005
Futures......................................................... 3,444,635
Foreign currency related transactions........................... 1,890
- ------------------------------------------------------------------------------------
NET ASSETS.......................................................... $2,570,369,454
- ------------------------------------------------------------------------------------
CLASS 1:
NET ASSETS.......................................................... 1,131,038,148
Shares outstanding ($0.01 par value; unlimited shares authorized)... 74,526,386
Net asset value per share........................................... $15.18
CLASS 2:
NET ASSETS.......................................................... 18,140,267
Shares outstanding ($0.01 par value; unlimited shares authorized)... 1,199,140
Net asset value per share........................................... $15.13
CLASS 3:
NET ASSETS.......................................................... 1,421,191,039
Shares outstanding ($0.01 par value; unlimited shares authorized)... 93,833,032
Net asset value per share........................................... $15.15
See Notes to Financial Statements.
28
Statement of Operations TOTAL
FOR THE YEAR ENDED DECEMBER 31, 2009 RETURN
FUND
----------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend........................................... $ 24,556,571
Interest........................................... 24,553,910
Interest from affliated investments................ 415,201
Less: Foreign taxes withheld....................... (1,361,314)
----------------------------------------------------------------------
TOTAL INCOME......................................... 48,164,368
----------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees................... 10,167,344
Distributors Fees (Notes 4)
Service Class
Class 1........................................ 2,057,487
Class 2........................................ 37,631
Class 3........................................ 4,858,611
Class 4........................................ 80,222
Transfer agent..................................... 35,474
Directors' fees.................................... 84,585
Custody and accounting expenses.................... 520,351
Professional fees.................................. 399,701
Registration expenses.............................. 45,060
Other expenses..................................... 378,719
----------------------------------------------------------------------
TOTAL EXPENSES BEFORE WAIVER AND REIMBURSEMENT....... 18,665,185
----------------------------------------------------------------------
Less: Expenses Waived or borne by the adviser...... (749,953)
Less: Expenses reimbursed by the adviser........... (335,072)
----------------------------------------------------------------------
Net expenses....................................... 17,580,160
----------------------------------------------------------------------
NET INVESTMENT INCOME................................ 30,584,208
----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments...................................... (225,049,110)
Futures.......................................... 15,044,387
Foreign currency transactions.................... (284,121)
INCREASE IN UNREALIZED APPRECIATION ON:
Investments...................................... 610,524,213
Futures.......................................... 2,809,844
Foreign currency transactions.................... 24,416
----------------------------------------------------------------------
Net realized and unrealized gain on investments.... 403,069,629
----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS. $ 433,653,837
----------------------------------------------------------------------
See Notes to Financial Statements.
29
Statements of TOTAL
Changes in Net Assets RETURN
FUND
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2009 2008
- ---------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income................................................................ $ 30,584,208 $ 53,915,515
Net realized gain (loss) on investments, futures, and foreign currency transactions
and swaps........................................................................... (210,288,844) (129,762,612)
Net increase (decrease) in unrealized appreciation/(depreciation) on investments,
futures, and foreign currency translation........................................... 613,358,473 (792,228,119)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations............................................... 433,653,837 (868,075,216)
- ---------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class 1............................................................................. (14,381,282) (25,465,260)
Class 2............................................................................. (226,665) (326,074)
Class 3............................................................................. (16,093,364) (27,786,517)
Class 4............................................................................. -- (176)
Net realized gains
Class 1............................................................................. -- (5,318,774)
Class 2............................................................................. -- (69,064)
Class 3............................................................................. -- (5,975,204)
Class 4............................................................................. -- (41)
Return of capital
Class 1............................................................................. (2,092,585) --
Class 2............................................................................. (32,981) --
Class 3............................................................................. (2,341,706) --
Class 4............................................................................. -- --
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS..................................................................... (35,168,583) (64,941,110)
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions..................... 398,485,254 (933,016,326)
- ---------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares
Class 1............................................................................. 14,984,009 12,895,842
Class 2............................................................................. 3,853,694 6,814,144
Class 3*............................................................................ 129,173,281* 388,721,821
Class 4............................................................................. 51,043,749 9,000
Value of distributions reinvested
Class 1............................................................................. 16,473,867 30,784,034
Class 2............................................................................. 259,646 395,138
Class 3............................................................................. 18,435,070 33,761,721
Class 4............................................................................. -- 217
Cost of shares redeemed
Class 1............................................................................. (70,379,890) (119,670,911)
Class 2............................................................................. (1,548,125) (4,090,605)
Class 3............................................................................. (46,736,037) (18,666,216)
Class 4*............................................................................ (55,604,507)* --
- ---------------------------------------------------------------------------------------------------------------------------
Net increase from share transactions.................................................. 59,954,757 330,954,185
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS................................................. 458,440,011 (602,062,141)
NET ASSETS
Beginning of period..................................................................... 2,111,929,443 2,713,991,584
- ---------------------------------------------------------------------------------------------------------------------------
End of period........................................................................... $2,570,369,454 $2,111,929,443
- ---------------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF)
NET INVESTMENT INCOME, END OF PERIOD.................................................... $ (388,440) $ 12,784
- ---------------------------------------------------------------------------------------------------------------------------
* SHARES OF CLASS 4 ($51,960,307) WERE TRANSFERRED TO CLASS 3 ON NOVEMBER 9,
2009, THE CLASS WAS ALSO CLOSED.
See Notes to Financial Statements.
30
Statements of Changes in Net Assets (continued) Total
Changes in Fund Shares Return
Fund
--------------------------------------------------------------------------
Year Ended Year Ended
December 31, December 31,
2009 2008
--------------------------------------------------------------------------
CHANGES IN FUND SHARES
Class 1
Shares sold................................. 1,110,679 788,055
Issued for distributions reinvested......... 1,079,530 2,422,033
Shares redeemed............................. (5,243,835) (7,557,024)
--------------------------------------------------------------------------
Net increase in fund shares................. (3,053,626) (4,346,936)
--------------------------------------------------------------------------
Class 2
Shares sold................................. 288,188 401,179
Issued for distributions reinvested......... 17,071 31,187
Shares redeemed............................. (115,478) (246,196)
--------------------------------------------------------------------------
Net increase in fund shares................. 189,781 186,170
--------------------------------------------------------------------------
Class 3
Shares sold................................. 9,005,295 22,764,099
Issued for distributions reinvested......... 1,210,423 2,660,498
Shares redeemed............................. (3,600,902) (1,341,496)
--------------------------------------------------------------------------
Net increase in fund shares................. 6,614,816 24,083,101
--------------------------------------------------------------------------
Class 4
Shares sold................................. 3,713,857 513
Issued for distributions reinvested......... -- 17
Shares redeemed............................. (3,714,451) --
--------------------------------------------------------------------------
Net increase (decrease) in fund shares...... (594) 530
--------------------------------------------------------------------------
See Notes to Financial Statements.
31
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
1. ORGANIZATION OF THE COMPANY
GE Investments Funds, Inc. (the "Company") was incorporated under the laws of
the Commonwealth of Virginia on May 14, 1984 and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Company is composed of fourteen investment
portfolios (collectively the "Funds"), although only the following eleven are
currently being offered: U.S. Equity Fund, S&P 500 Index Fund, Premier Growth
Equity Fund, Core Value Equity Fund, Mid-Cap Equity Fund, Small-Cap Equity
Fund, International Equity Fund, Total Return Fund (the "Fund"), Income Fund,
Money Market Fund and Real Estate Securities Fund. The Fund presently offers
four classes of shares; however only three currently have shares outstanding.
Shares of Class 4 were fully redeemed during the past year.
Shares of the Funds of the Company are offered only to insurance company
separate accounts that fund certain variable life insurance contracts and
variable annuity contracts. These insurance companies may include insurance
companies affiliated with GE Asset Management Incorporated ("GEAM"), the
investment adviser and administrator of each of the Funds.
The Company offers four share classes of the Fund as investment options for
variable life insurance and variable annuity contracts -- Class 1, Class 2 and
Class 3. Classes 2 and 3 shares were first offered on May 1, 2006, and Fund
shares outstanding prior to May 1, 2006 were designated as Class 1 shares. Each
class of shares has different fees and expenses, and as a result, each class of
shares will have different share price and performance. Not all variable
contracts offer every class of the Fund's shares.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results may differ from
those estimates.
ACCOUNTING CHANGES
The Financial Accounting Standards Board (FASB) issued FASB Accounting
Standards Codification (ASC) effective for financial statements issued for
interim and annual periods ending after September 15, 2009. The ASC is an
aggregation of previously issued authoritative U.S. generally accepted
accounting principles (GAAP) in one comprehensive set of guidance organized by
subject area. In accordance with the ASC, references to previously issued
accounting standards have been replaced by ASC references. Subsequent revisions
to GAAP will be incorporated into the ASC through Accounting Standards Updates
(ASU).
SUBSEQUENT EVENTS
Subsequent events after the balance sheet date through the date that the
financial statements were issued have been evaluated in the preparation of the
Financial Statement.
The following summarizes the significant accounting policies of the Fund:
SECURITY VALUATION AND TRANSACTIONS
The Fund's portfolio securities are valued generally on the basis of market
quotations. Equity securities generally are valued at the last reported sales
price on the primary market in which they are traded. Portfolio securities
listed on NASDAQ are valued using the NASDAQ Official Closing Price, which may
not necessarily represent the last sale price. If no sales occurred on the
exchange or NASDAQ that day, the portfolio security generally is valued using
the last reported bid price.
Debt securities (other than short-term securities described below) generally
are valued at an evaluated bid as reported by an independent pricing service.
Values obtained from pricing services are based on various factors such as
market transactions, dealer supplied valuations, security characteristics and
other market data. In the absence of a reliable price from such a pricing
service, debt securities may be valued based on dealer supplied valuations or
quotations. The Fund's written or purchased options are valued at the last
sales price, or if no sales occurred that day, at the last reported bid price.
Short-term investments of sufficient quality with remaining maturities of sixty
days or less at the time of purchase are valued on the basis of amortized cost,
which approximates market value.
All assets and liabilities of the Fund that are initially expressed in foreign
currency values will be converted into U.S. dollars at the WM/Reuters exchange
rate computed at 11:00 a.m., Eastern time.
If prices are not readily available for a portfolio security, or if it is
believed that a price for a portfolio security does not represent its fair
value, the security may be valued using procedures approved by the Fund's Board
of Directors that are designed to establish its "fair" value.
32
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
Foreign securities may be valued with the assistance of an independent fair
value pricing service in circumstances where it is believed that they have been
or would be materially affected by events occurring after the close of the
portfolio security's primary market and before the close of regular trading on
the NYSE. This independent fair value pricing service uses a computerized
system to appraise affected securities and portfolios taking into consideration
various factors and the fair value of such securities may be something other
than the last available quotation or other market price.
GEAM may also separately monitor portfolio securities and, consistent with the
Fund's fair value procedures, apply a different value to a portfolio security
than would be applied had it been priced using market quotations or by an
independent fair value pricing service.
Determining the fair value of securities involves the application of both
subjective and objective considerations. Security values may differ depending
on the methodology used to determine their values, and may differ from the last
quoted sale or closing price. No assurance can be given that the use of these
fair value procedures will always better represent the price at which the Fund
could sell the affected portfolio security.
The inputs or methodology used for valuing securities are not an indication of
the risk associated with Investing in those securities. For example, money
market securities are valued using amortized cost, in accordance with the
Investment Company Act of 1940. Generally, amortized cost reflects the current
fair value of a security, but since the value is not obtained from a quoted
price in an active market, such securities are reflected as Level 2. Fair value
determinations are required for securities whose value is affected by a
significant event that will materially affect the value of a domestic or
foreign security and which occurs subsequent to the time of the close of the
principal market on which such domestic or foreign security trades but prior to
the calculation of the Fund's NAV.
Security transactions are accounted for as of the trade date. Realized gains
and losses on investments sold are recorded on the basis of identified cost for
both financial statement and federal tax purposes.
FAIR VALUE MEASUREMENTS
The Fund adopted ASC 820, FAIR VALUATION MEASUREMENTS AND DISCLOSURES effective
January 1, 2008. This guidance establishes a new framework for measuring fair
value and expands related disclosures. Broadly, the framework requires fair
value to be determined based on the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction
between market participants. It also establishes a three-level valuation
hierarchy based upon observable and non-observable inputs.
For financial assets and liabilities, fair value is the price the Fund would
receive to sell an asset or pay to transfer a liability in an orderly
transaction with a market participant at the measurement date. In the absence
of active markets for the identical assets or liabilities, such measurements
involve developing assumptions based on market observable data and, in the
absence of such data, internal information that is consistent with what market
participants would use in a hypothetical transaction that occurs at the
measurement date.
Observable inputs reflect market data obtained from independent sources, while
unobservable inputs reflect our market assumptions. Preference is given to
observable inputs. These two types of inputs create the following fair value
hierarchy:
Level 1 -- Quoted prices for identical investments in active markets.
Level 2 -- Quoted prices for similar investments in active markets; quoted
prices for identical or similar investments in markets that are not active;
and model-derived valuations whose inputs are observable or whose
significant value drivers are observable.
Level 3 -- Significant inputs to the valuation model are unobservable.
Policies and procedures are maintained to value investments using the best and
most relevant data available. In addition, GEAM performs periodic reviews of
the methodologies used by independent pricing services including price
validation of individual securities.
The following section describes the valuation methodologies the Fund uses to
measure different financial investments at fair value.
When available, the Fund uses quoted market prices to determine the fair value
of investment securities, and they are included in Level 1. Level 1 securities
primarily include publicly-traded equity securities.
When quoted market prices are unobservable, pricing information is obtained
from an independent pricing vendor. The pricing vendor uses various pricing
models for each asset class that are consistent with what other market
participants would use. The inputs and assumptions to the model of the pricing
vendor are derived from market observable sources including: benchmark yields,
reported trades, broker/dealer quotes, issuer spreads, benchmark
33
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
securities, bids, offers, and other market-related data. Since many fixed
income securities do not trade on a daily basis, the methodology of the pricing
vendor uses available information as applicable such as benchmark curves,
benchmarking of like securities, sector groupings, and matrix pricing. The
pricing vendor considers all available market observable inputs in determining
the evaluation for a security. Thus, certain securities may not be priced using
quoted prices, but rather determined from market observable information. These
investments are included in Level 2 and primarily comprise our portfolio of
corporate fixed income, and government, mortgage and asset-backed securities.
In infrequent circumstances, pricing vendors may provide the Fund with
valuations that are based on significant unobservable inputs, and in those
circumstances the investment securities are included in Level 3.
The Fund uses non-binding broker quotes as the primary basis for valuation when
there is limited, or no, relevant market activity for a specific investment or
for other investments that share similar characteristics. The Fund has not
adjusted the prices obtained. Investment securities priced using non-binding
broker quotes are included in Level 3. As is the case with the primary pricing
vendor, third-party brokers do not provide access to their proprietary
valuation models, inputs and assumptions. Accordingly, GEAM conducts internal
reviews of pricing for all such investment securities periodically to ensure
reasonableness of valuations used in our financial statements. These reviews
are designed to identify prices that appear stale, those that have changed
significantly from prior valuations, and other anomalies that may indicate that
a price may not be accurate. Based on the information available, GEAM believes
that the fair values provided by the brokers are representative of prices that
would be received to sell the assets at the measurement date (exit prices).
Other financial investments are derivative investments that are not reflected
in TOTAL INVESTMENTS, such as futures, forwards, swaps, and written options
contracts, which are valued based o the unrealized appreciation/depreciation of
the instrument.
The Fund uses closing prices for derivatives included in Level 1, which are
traded either on exchanges or liquid over-the counter markets. Derivative
assets and liabilities included in Level 2 primarily represent interest rate
swaps, cross-currency swaps and foreign currency and commodity forward and
option contracts. Derivative assets and liabilities included in Level 3
primarily represent interest rate products that contain embedded optionality or
prepayment features.
In January 2010, FASB issued ASU 2010-06, IMPROVING DISCLOSURES ABOUT FAIR
VALUE MEASUREMENTS. ASU 2010-06 will require reporting entities to make new
disclosures about the amounts and reasons for significant transfers in and out
of Level 1 and Level 2 fair value measurements and inputs and valuation
techniques used to measure fair value for both recurring and nonrecurring fair
value measurements that fall in either Level 2 or Level 3, and information on
purchases, sales, issuances, and settlements in the roll forward of activity in
Level 3 fair value measures. The new disclosures are effective for interim and
annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements. Those disclosures are
effect for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. GEAM does not believe the adoption of ASU
2010-06 will materially impact the financial statement amounts.
The following tables present the funds' investments measured at fair value on a
recurring basis at December 31, 2009:
Level 1 Level 2 Level 3 Total
- --------------------------------------------------------------------------------------
Investments in Securities+ $1,133,424,075 $1,448,066,525 $29,879,258 $2,611,369,858
Other Financial Instruments+ 3,445,409 -- -- 3,445,409
+SEE STATEMENT OF INVESTMENTS FOR INDUSTRY CLASSIFICATION.
34
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
Following is a reconciliation of securities activity based on Level 3 inputs
for which unobservable market inputs were used to determine fair value.
Investments
in Securities
- ----------------------------------------------------------------------------------
Balance at 12/31/08 $ 16,622,263
Accrued discounts/premiums (100,176)
Realized gain (loss) (3,094,068)
Change in unrealized appreciation (depreciation) 2,533,811
Net purchases (sales) 18,109,320
Net transfers in and out of Level 3 (4,191,892)
- ----------------------------------------------------------------------------------
Balance at 12/31/09 $29,879,258
- ----------------------------------------------------------------------------------
Change in unrealized gain/(loss) for the year on level 3 securities
still held at 12/31/09 $ (29,846)
Transfers in and out of Level 3 are considered to occur at the beginning of the
period.
REPURCHASE AGREEMENTS The Fund may enter into repurchase agreement transactions
with respect to instruments that are consistent with the Fund's investment
objectives or policies. The Fund's custodian or a third party custodian takes
possession of the collateral pledged for investments in repurchase agreements
on behalf of the Fund. The Fund values the underlying collateral daily on a
mark-to-market basis to determine that the value, including accrued interest,
is at least equal to 102% of the repurchase price. In the event the seller
defaults and the value of the security declines, or if the seller enters an
insolvency proceeding, realization of the collateral by the Fund may be delayed
or limited.
SECURITY LENDING The Fund may loan securities to brokers, dealers, and
financial institutions determined by GEAM to be creditworthy, subject to
certain limitations. The Fund continues to receive the interest and dividends
on the loaned securities during the term of the loan. The loans of securities
are secured by collateral in the form of cash or other liquid assets, which are
segregated and maintained with the custodian in an amount at least equal to
102% of the current market value of the loaned securities. During the term of
the loan, the Fund will record any gain or loss in the market value of its
loaned securities and of securities in which cash collateral is invested. The
Fund will also earn interest, net of any rebate, from securities in which cash
collateral is invested. In the event the counterparty (borrower) does not meet
its contracted obligation to return the securities, the Fund may be exposed to
the risk of loss of reacquiring the loaned securities at prevailing market
prices using the proceeds of the sale of the collateral.
FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the prevailing rates of exchange
on a daily basis (on days the New York Stock Exchange is open). Purchases and
sales of securities, income receipts and expense payments denominated in
foreign currencies are translated into U.S. dollars at the prevailing exchange
rate on the respective dates of such transactions.
The Fund does not isolate the portion of the results of operations resulting
from changes in foreign exchange rates of foreign denominated securities from
the fluctuations arising from changes in the market prices of those securities
during the period. Such fluctuations are included in the net realized or
unrealized gain or loss from investments. Net realized gains or losses on
foreign currency transactions represent net gains or losses on sales and
maturities of foreign currency contracts, disposition of foreign currencies,
the difference between the amount of net investment income and withholding
taxes accrued and the U.S. dollar amount actually received or paid, and gains
or losses between the trade and settlement date on purchases and sales of
securities. Net unrealized foreign exchange gains and losses arising from
changes in the value of other assets and liabilities as a result of changes in
foreign exchange rates are included as increases or decreases in unrealized
appreciation/depreciation on foreign currency related transactions.
FUTURES CONTRACTS The Fund may invest in interest rate, financial or stock or
bond index futures contracts subject to certain limitations. The Fund may
invest in futures contracts to manage its exposure to the stock and bond
markets and fluctuations in currency values. Buying futures tends to increase
the Fund's exposure to the underlying instrument while selling futures tends to
decrease the Fund's exposure to the underlying instrument, or hedge other Fund
investments. The Fund will not enter into a transaction involving futures for
speculative purposes. The Fund's risks in using these contracts include changes
in the value of the
35
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
underlying instruments, non-performance of the counterparties under the
contracts' terms and changes in the liquidity of the secondary market for the
contracts. Futures contracts are valued at the settlement price established
each day by the board of trade or exchange on which they principally trade.
Upon entering into a futures contract, the Fund is required to pledge to the
broker an amount of cash and/or other assets equal to a certain percentage of
the contract amount, known as initial margin deposit. Subsequent payments,
known as variation margin, are made or received by the Fund each day, depending
on the daily fluctuation in the fair value of the underlying security. The Fund
records an unrealized gain or loss equal to the daily variation margin. Should
market conditions move unexpectedly, the Fund may not achieve the anticipated
benefits of the futures contracts and may incur a loss. The Fund recognizes a
realized gain or loss on the expiration or closing of a futures contract.
OPTIONS The Fund may purchase and write options, subject to certain
limitations. The Fund may invest in options contracts to manage its exposure to
the stock and bond markets and fluctuations in foreign currency values. Writing
puts and buying calls tend to increase the Fund's exposure to the underlying
instrument while buying puts and writing calls tend to decrease the Fund's
exposure to the underlying instrument, or hedge other Fund investments. The
Fund will not enter into a transaction involving options for speculative
purposes. The Fund's risks in using these contracts include changes in the
value of the underlying instruments, non-performance of the counterparties
under the contracts' terms and changes in the liquidity of the secondary market
for the contracts. Options are valued at the last sale price, or if no sales
occurred on that day, at the last quoted bid price.
When the Fund writes an option, the amount of the premium received is recorded
as a liability and is subsequently adjusted to the current fair value of the
option written. Premiums received from writing options that expire unexercised
are treated by the Fund on the expiration date as realized gains from
investments. The difference between the premium and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium is less than the amount paid
for the closing purchase, as a realized loss. When an option is exercised, the
proceeds from the sale of the underlying security or the cost basis of the
securities purchased is adjusted by the original premium received or paid.
SWAP CONTRACTS As part of the investment strategy, the Fund may invest in swap
agreements, which are agreements to exchange the return generated by one
instrument for the return generated by another instrument. Total return swap
agreements involve commitments to pay interest in exchange for a market linked
return based upon a notional principal amount. To the extent the total return
of the security or index underlying the agreement exceeds or falls short of the
offsetting interest rate obligation, the Fund will receive a payment from or
make a payment to the counterparty. Swaps are marked to market daily based upon
the underlying security or index. Payments received or made are recorded as
realized gain or loss in the Statement of Operations. Entering into swap
agreements involves, to varying degrees, elements of credit and market risk in
excess of the amounts recognized on the Statement of Assets and Liabilities.
Such risks involve the possibility that there will be no liquid market for
these agreements, that the counterparty to the agreements may default on its
obligation to perform and that there may be unfavorable changes in the value of
the index or securities underlying the agreement. Notional principal amounts
are used to express the extent of involvement in these transactions, but the
amounts potentially subject to credit risk are much smaller.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The Fund may purchase or sell
securities on a when-issued or forward commitment basis. These transactions are
arrangements in which the Fund purchases and sells securities with payment and
delivery scheduled a month or more after entering into the transactions. The
price of the underlying securities and the date when these securities will be
delivered and paid for are fixed at the time the transaction is negotiated.
Losses may arise due to changes in the market value of the underlying
securities or if the counterparty does not perform under the contracts. In
connection with such purchases, the Fund maintains cash or liquid assets in an
amount equal to purchase commitments for such underlying securities until
settlement date and for sales commitments, the Fund maintains equivalent
deliverable securities as "cover" for the transaction. Unsettled commitments
are valued at the current market value of the underlying security. Daily
fluctuations in the value of such contracts are recorded as unrealized gains or
losses. The Fund will not enter into such commitments for the purpose of
investment leverage.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts to facilitate transactions in foreign
denominated
36
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
securities and to manage the Fund's currency exposure. Forward foreign currency
exchange contracts are valued at the mean between the bid and the offered
forward rates as last quoted by a recognized dealer. The aggregate principal
amounts of the contracts are not recorded in the Fund's financial statements.
Such amounts appear under the caption forward foreign currency contracts in the
Schedule of Investments. Fluctuations in the value of the contracts are
recorded in the Statement of Assets and Liabilities as an asset (or liability)
and in the Statement of Operations as unrealized appreciation (depreciation)
until the contracts are closed, when they are recorded as realized gains or
losses on foreign currency related transactions. The Fund's risks in using
these contracts include changes in the value of foreign currency or the
possibility that the counterparties do not perform under the contracts' terms.
When the Fund enters into a forward foreign currency exchange contract, it is
required to segregate cash or liquid securities with its custodian in an amount
equal to the value of the Fund's total assets committed to the consummation of
the forward contract. If the value of the segregated securities declines,
additional cash or securities is segregated so that the value of the account
will equal the amount of the Fund's commitment with respect to the contract.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for
federal income tax purposes. The Fund is subject to ASC 740, INCOME TAXES. ASC
740 provides guidance for financial accounting and reporting for the effects of
income taxes that result from an entity's activities during the year. ASC 740
also provides guidance regarding how certain uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. ASC
740 requires evaluation of tax positions taken or expected to be taken in the
course of preparing the Funds' tax returns to determine whether the tax
positions are "more likely than not" of being sustained by the applicable tax
authority. There are no adjustments to the Funds' net assets required under ASC
740. The Funds' 2006, 2007, 2008 and 2009 fiscal years tax returns are still
open to examination by the Federal and applicable state tax authorities."
At December 31, 2009, information on the tax cost of investments is as follows:
Net Tax
Appreciation/
Cost of (Depreciation) on Undistributed
Derivatives, Undistributed Long-Term Post October
Investments Net Tax Currency Income/ Gains Losses
for Gross Tax Gross Tax Appreciation/ and (Accumulated (see
Tax Unrealized Unrealized (Depreciation) on other Net (Accumulated Capital Detail
Purposes Appreciation Depreciation Investments Assets Ordinary Loss) Loss) Below)
- --------------------------------------------------------------------------------------------------------------------------
$2,597,868,470 $183,027,203 $(169,525,815) $13,501,388 $24,074 $12,769 $(274,787,188) $(12,853,549)
As of December 31, 2009, the Fund has capital loss carryovers, as indicated
below.
Amount Expires
---------------------------------------------------
$ 21,723,574 12/31/2016
253,063,614 12/31/2017
Any net capital and currency losses incurred after October 31, within the
Fund's tax year, are deemed to arise on the first day of the Fund's next tax
year if the Fund so elects to defer such losses.
The Fund elected to defer losses incurred after October 31, 2009 as follows:
Capital Currency
---------------------------------------------------
$12,452,340 $401,209
37
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
The tax composition of distributions paid during the years ended December 31,
2009 and December 31, 2008 were as follows:
Long-Term
Ordinary Capital Return of
Income Gains Capital Total
- ---------------------------------------------------
2009 $30,701,311 $ -- $4,467,272 $35,168,583
2008 53,455,875 11,362,592 122,643 64,941,110
Distributions to Shareholders The Fund declares and pays net realized capital
gains in excess of capital loss carryforwards distributions annually. The
character of income and gains to be distributed is determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences include (but are not limited to) futures,
treatment of realized gains and losses on foreign currency
transactions, and losses deferred due to wash sale transactions.
Reclassifications due to permanent book/tax differences are made to the Fund's
capital accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations. These
reclassifications have no impact on net investment income, realized gains or
losses, or the net asset value of the Fund. The calculation of net investment
income per share in the Financial Highlights table excludes these adjustments.
The reclassifications for the year ended December 31, 2009 were as follows:
Undistributed
(Distribution
in Excess of)
Net Investment Accumulated
Income Net Realized Gain Paid In Capital
- -----------------------------------------------------------------------------
$4,183,151 $284,121 $(4,467,272)
INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on
the ex-dividend date, net of applicable withholding taxes, except for certain
foreign corporate actions, which are recorded as soon after ex-dividend date as
such information becomes available. Interest income is recorded on the accrual
basis. All discounts and premiums on bonds are accreted and amortized
respectively to call or maturity date, whichever is shorter, using the
effective yield method.
EXPENSES Fund specific expenses are allocated to the Fund that incurs such
expense and pro rata across share classes. Expenses, other than those incurred
by a specific Fund, are allocated pro rata among Funds and share classes. Such
expenses may include custodial fees, legal and accounting fees, printing costs
and registration fees. All expenses of the Fund are paid by GEAM and reimbursed
by the Fund. Certain class specific expenses (such as transfer agency fees or
distribution fees) are allocated to the class that incurs such expense.
DERIVATIVE INSTRUMENTS The Fund is subject to equity price risk, interest rate
risk, and foreign currency exchange rate risk in the normal course of pursuing
their investment objectives. The Fund entered into derivative transactions for
the purpose of hedging against the effects of changes in the value of portfolio
securities due to anticipated changes in market conditions, to gain market
exposure for residual and accumulating cash positions, and for managing the
duration of fixed-income investments. A futures contract represents a
commitment for the future purchase or sale of an asset at a specified price on
a specified date. Upon entering into such contracts, the Fund is required to
deposit with the broker, either in cash or securities, an initial margin in an
amount equal to a certain percentage of the contract amount. Subsequent
payments (variation margin) are made or received by the Funds each day,
depending on the daily fluctuations in the value of the contract, and are
recorded for financial statement purposes as unrealized gains or losses by the
Funds. Upon entering into such contracts, the Fund bear the risk of interest or
exchange rates or securities prices moving unexpectedly, in which case, the
Fund may not achieve the anticipated benefits of the futures contracts and may
realize a loss. With futures contracts, there is minimal counterparty credit
risk to the Fund since futures contracts are exchange traded and the exchange's
clearinghouse, as counterparty to all traded futures, guarantees the futures
against default.
38
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
Shown below are the derivative contracts entered into by the Fund, summarized
by primary risk exposure.
Asset Derivatives December 31, 2009 Liability Derivatives December 31, 2009
Derivatives not ---------------------------------------------------------- ---------------------------------------
accounted for as Location in Notional Location in the Notional
hedging instruments the Statements Value/No. of Statements Value/No. of
under FASB of Assets Contracts Fair of Assets Contracts Fair
ASC 815 and Liabilities Long/(Short) Value and Liabilities Long/(Short) Value
- - ---------------------------------------------------------------------------------------------------
Equity Contracts Receivables, Net Assets - 200,865,133/3,517 3,137,788* -- -- --
Unrealized Appreciation/
(Depreciation)
- ------------------------------------------------------------------------------------------------------------------------
Interest Rate Receivables, Net Assets - 5,909,429/522 306,847*
Contracts Unrealized Appreciation/
(Depreciation) on
Futures
- ------------------------------------------------------------------------------------------------------------------------
*INCLUDES CUMULATIVE APPRECIATION/DEPRECIATION OF FUTURES CONTRACTS AS REPORTED
IN THE SCHEDULE OF INVESTMENTS AND EQUITY SECTION OF THE STATEMENTS OF ASSETS
AND LIABILITIES. ONLY THE CURRENT DAY'S VARIATION MARGIN IS REPORTED WITHIN
THE RECEIVABLES AND/OR PAYABLES STATEMENT OF ASSETS AND LIABILITIES.
Shown below are the effects of derivative instruments on the Fund's Statements
of Operations, summarized by primary risk exposure.
Derivatives not Change in Unrealized
accounted Appreciation/
for as hedging Location in the Total Number of Futures/ Realized Gain or (Depreciation) on
instruments under FASB Statements of Options Contracts (Loss) on Derivatives Derivatives
ASC 815 Operations Purchased/(Sold) Recognized in Income Recognized in Income
- -------------------------------------------------------------------------------------------------------------------------
Equity Contracts Net realized gain/ (loss) 9,601/(6,136) 14,907,695 2,421,225
on futures, Increase/
(decrease)
in unrealized appreciation/
(depreciation) on futures
- -------------------------------------------------------------------------------------------------------------------------
Interest Rate Contracts Net realized gain/(loss) 7,754/(8,046) 136,692 388,619
on futures, Increase/
(decrease) in unrealized
appreciation/
(depreciation) on
futures
- -------------------------------------------------------------------------------------------------------------------------
3. LINE OF CREDIT
The Company shares a revolving credit facility of up to $150 million with a
number of its affiliates. The credit facility is with its custodian bank, State
Street Bank and Trust Company. The revolving credit facility requires the
payment of a commitment fee equal to 0.15% per annum on the daily unused
portion of the credit facility, payable quarterly. The portion borne by the
Funds generally is borne proportionally based upon net assets. In addition, the
Company has a $100 million uncommitted, unsecured line of credit with State
Street. Generally, borrowings under the credit facilities would accrue interest
at the Federal Funds Rate plus 50 basis points and would be borne by the
borrowing Fund. The maximum amount allowed to be borrowed by any one Fund is
the lesser of (i) its prospectus limitation or (ii) 20% of its net assets. The
credit facilities were not utilized by the Fund during the fiscal year ended
December 31, 2009.
4. AMOUNTS PAID TO AFFILIATES
GEAM, a registered investment adviser, was retained by the Company's Board of
Directors effective May 1, 1997 to act as investment adviser and administrator
of the Fund. GEAM's compensation for investment advisory and administrative
services is paid monthly based on the average daily net assets of the Fund. At
a special meeting of shareholders of the Total Return Fund held on April 9,
2009, the Fund's shareholders approved a new annual
39
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
investment advisory and administrative fee of 0.50% of the average daily net
assets of the Fund, which became effective on May 1, 2009. Prior to May 1,
2009, the following fee schedule had been in effect for the Fund:
Annualized based on average daily net assets
-----------------------------------------------------
Average Daily Advisory and
Net Assets of Fund Administration Fees
-----------------------------------------------------
First $100 million 0.50%
Next $100 million 0.45%
Next $100 million 0.40%
Next $100 million 0.35%
Over $400 million 0.30%
GEAM waives a portion of the Fund's management fee in the amount equal to the
management fee earned by GEAM with respect to the Fund's investment in the GE
Funds - GE Money Market Fund.
For periods prior to May 1, 2009: Pursuant to an expense limitation agreement
with the Fund, GEAM had agreed to limit total operating expenses charged to
Fund assets attributable to each class of shares (excluding class specific
expenses such as Investor Service Plan Fees (for Class 1 shares), Distribution
and Service (12b-1) Fees, and excluding interest, taxes, brokerage commissions,
other expenditures that are capitalized in accordance with generally accepted
accounting principles, and other extraordinary expenses not incurred in the
ordinary course of the Fund's business) to 0.32% of the average daily net
assets of the Fund attributable to such shares, in each case on an annual
basis. This agreement was terminated on April 30, 2009.
Effective May 1, 2009: GEAM has entered into contractual arrangement with the
Company to limit the advisory and administrative fees paid by the Fund on an
annual basis to 0.48% of the average daily net assets of the Fund. The advisory
and administrative fee reduced by GEAM may however be recouped by GEAM for up
to three years from the date reduced, provided that the total operating expense
ratio for the Fund's Class 1 shares, after giving effect to the recoupment,
would not exceed 0.80% for the fiscal year in which the recoupment is made.
Unless earlier terminated or cancelled, this agreement will continue in effect
until April 30, 2010. The Company may terminate the agreement without penalty
upon 60 days written notice to GEAM. The agreement may also be terminated or
amended by the mutual consent of the Company and GEAM.
GENPACT performs certain accounting and certain administration services not
provided by GEAM. For the period ending December 31, 2009, $42,343 was charged
to the Fund.
INVESTOR SERVICE PLAN -- CLASS 1 AND CLASS 3 SHARES The Company adopted an
Investor Service Plan (the "Services Plan") on December 9, 2005 for Class 1
shares and on May 1, 2009 for Class 3 shares of the Total Return Fund. The
Services Plans were not adopted pursuant to Rule 12b-1 under the 1940 Act. Each
Services Plan provides that during any fiscal year, the amount of compensation
paid under the Services Plan by the Total Return Fund Class 1 or Class 3 shares
may not exceed the annual rate of 0.20% of the average daily net assets of the
Total Return Fund attributable to each such class shares.
DISTRIBUTION AND SHAREHOLDER SERVICE (12B-1) FEES The Company has adopted a
Distribution and Service (12b-1) Plan (12b-1 Plan) pursuant to Rule 12b-1 under
the 1940 Act with respect to each of Class 1, Class 2 and Class 3 shares of the
Total Return Fund. Under the 12b-1 Plan for Class 1 shares that became
effective May 1, 2009, payments made under the Class 1 Investor Service Plan
are covered in the event that any portion of compensation paid pursuant to the
Class 1 Investor Service Plan is determined to be an indirect use of the assets
attributable to the Class 1 shares to finance distribution of such shares.
Under each 12b-1 Plan for Class 2 and Class 3 shares, the Company, on behalf of
the Total Return Fund, may compensate GE Investment Distributors, Inc. (GEID),
the distributor of the shares of the Total Return Fund, for certain sales
services provided by GEID or other broker dealers and investor services
provided by GEID or other service providers relating to the Fund's Class 2 and
Class 3 shares, including services to owners or prospective owners of variable
contracts issued by insurance companies that offer such share classes of the
Total Return Fund as an investment option under such variable contracts.
Effective May 1, 2009, the amount of compensation paid under each 12b-1 Plan
may not exceed: 0.25% for Class 2 shares and 0.25% for Class 3 shares, of the
average daily net assets of the Fund attributable to such share class. The
12b-1 Plan continues in effect from year to year for so long as such
continuance is approved annually by the Board of Directors, including by those
directors who are not interested persons of the Company and who have no direct
or indirect financial interest in the operation of the 12b-1 Plan or in any
agreement related to it. In addition, the Class 3 12b-1 Plan covers payments
made under the Class 3 Investor Service Plan in the event that any portion of
compensation paid pursuant to the Class 3 Investor Service Plan is determined
to be an indirect use of the assets attributable to the Class 3 shares to
finance distribution of such shares.
40
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
DIRECTORS' COMPENSATION The Fund pays no compensation to its directors who are
officers or employees of GEAM or its affiliates. Directors who are not such
officers or employees also serve in a similar capacity for other funds advised
by GEAM. Compensation paid to unaffiliated directors are reflected on the
Statement of Operations. These fees are allocated pro rata across all of the
mutual fund platforms and share classes served by the directors, including the
Fund, and are based upon the relative net assets of each fund within such
platforms. (For additional information about directors compensation please
refer to the Statement of Additional Information.)
5. INVESTMENT TRANSACTIONS
PURCHASES AND SALES OF SECURITIES The cost of purchases and the proceeds from
sales of investments, other than short-term securities and options, for the
period ended December 31, 2009, were as follows:
U.S. Government Securities
-----------------------------------------------------
Purchases Sales
-----------------------------------------------------
$2,091,105,875 $2,329,274,725
Other Securities
-----------------------------------------------------
Purchases Sales
-----------------------------------------------------
$1,224,117,284 $984,969,281
SECURITY LENDING At December 31, 2009 and for the year then ended the Fund did
not participate in securities lending.
41
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors GE Investments Funds, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the Total Return Fund, a series of
GE Investments Funds, Inc., as of December 31, 2009, and the related statement
of operations for the year then ended, statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years or periods in the five-year period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of December 31, 2009 by
correspondence with the custodian and brokers, or by other appropriate auditing
procedures where replies from brokers were not received. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Total Return Fund as of December 31, 2009, the results of its operations,
changes in its net assets and financial highlights for each of the years or
periods described above, in conformity with U.S. generally accepted accounting
principles.
/s/ KPMG LLP
Boston, Massachusetts
February 25, 2010
42
Advisory and Administrative Agreement Approvals (unaudited)
- ---------------------------------------------------------------
The Board of Directors of the GE Investments Funds, Inc. (the "Board"),
including the independent Board members, considered and all those that were
present unanimously approved the continuance of the Fund's Investment Advisory
and Administration Agreement with GE Asset Management Incorporated ("GEAM") at
meetings held on December 4 and December 11, 2009.
The Board also was not asked to consider for renewal the Investment
Sub-Advisory Agreement with Urdang Securities Management Inc. ("Urdang") at
this time since it was approved by the Board on February 25, 2009 and has an
initial term of two years. It is expected to be reviewed during next year's
contract renewal process/1/.
In considering whether to approve the Fund's investment advisory agreement, the
Board members considered and discussed a substantial amount of information and
analysis provided, at the Board's request, by GEAM. The Board members also
considered detailed information regarding performance and expenses of other
investment companies, including those with similar investment objectives and
sizes, which was prepared by independent third party providers, Lipper
Analytical Services Inc. ("Lipper") and Morningstar, Inc. ("Morningstar"). The
Board members reviewed the fees charged by GEAM for other mutual funds that
employ the same investment strategy as the Fund. The Board had the opportunity
to ask questions and request additional information in connection with its
considerations.
Before approving the Fund's advisory agreement, the Board members reviewed the
information provided with management of GEAM and with independent legal
counsel. The Board members also reviewed a memorandum prepared by independent
legal counsel discussing the legal standards for the consideration of the
proposed continuance. The independent Board members discussed the proposed
continuance in detail during a private session with their independent legal
counsel at which no representatives of GEAM were present. The independent Board
members and their independent legal counsel requested, and received and
considered, additional information from GEAM following these sessions.
In advance of the meetings, and in response to their request, the Board members
received from GEAM written responses to their inquiries, which included
substantial exhibits and other materials related to GEAM's business and the
services it provides to the Fund. The Board members took into account their
multi-year experience as Board members and particularly their consideration of
these types of agreements in recent years. The information was presented in a
manner to facilitate comparison to prior periods and to reflect certain
enhancements. To focus their review, the Board members asked GEAM management,
in its oral presentation, to highlight material differences from the
information presented in recent years.
During the meetings, the Board members had an opportunity to discuss this
information with GEAM managers, including senior executives, representatives
from the legal, compliance and finance departments, and investment personnel.
The Board members posed questions to these representatives and engaged in
substantive discussions with them concerning GEAM's investment process.
In reaching their determination relating to continuance of the Fund's
investment advisory agreement, the Board members considered all factors that
they deemed relevant, including the factors discussed below. In their
deliberations, the Board members did not identify any particular information
that was all-important or controlling, and each Board member may have
attributed different weights to the various factors. In particular, the Board
members focused on the following:
THE NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED.
The Board members reviewed the services provided by GEAM, taking into account
their extensive past experiences with GEAM. They focused on the favorable
attributes of GEAM, including (i) an investment philosophy oriented toward
long-term performance; (ii) effective processes used for selecting investments
and brokers; (iii) effective processes used for providing Fund administration,
including controllership and compliance functions and oversight of the
performance of other companies that provide services to the Fund; (iv) highly
skilled professionals including
- --------------
/1/ It is expected that Urdang will begin serving as sub-adviser to the GEI
Total Return Fund when GEAM believes that market conditions will be
favorable for real estate related investments. Although no assets have been
allocated to Urdang in respect of the Total Return Fund at this time,
Urdang provided updated performance and other relevant information to
supplement the basis of the Board's previous approval of its Investment
Sub-Advisory Agreement.
43
Advisory and Administrative Agreement Approvals (unaudited)
- ---------------------------------------------------------------
analysts, research professionals, traders and portfolio managers with a depth
of experience involving the types of Funds they oversee; (v) access to
significant technological resources from which the Fund may benefit; and (vi) a
favorable history and reputation. The Board members discussed with senior
officers of GEAM the personnel changes made, and proposed to be made, by GEAM.
The Board members noted that the Fund represents only a small portion of the
assets managed by GEAM, but benefits from a full array of services and
resources provided by GEAM.
In light of these discussions, the Board, including the independent Board
members, concluded that GEAM's services continue to be satisfactory.
INVESTMENT PERFORMANCE OF THE FUND.
The Board members considered the investment performance of the Fund for various
periods. The Board members reviewed detailed comparisons of the performance of
the Fund with the relevant securities indices and peer groupings of mutual
funds prepared by Lipper and Morningstar with respect to various periods. The
Board members also engaged in detailed discussions with GEAM management about
its investment process and performance results. These discussions focused on
the Fund's investment objective, GEAM's asset allocation process, the number
and experience of portfolio management and supporting research personnel, the
investment style and approach employed, the likely market cycles for the
investment style and relative underperformance in certain periods. The Board
members discussed GEAM's investment approach with respect to the Fund, and that
the performance of the Fund is consistent with GEAM's articulated long-term
approach and overall investment philosophy.
The Board, including the independent Board members, concluded that the Fund's
performance was acceptable overall taking into consideration the factors
discussed above.
COST OF THE SERVICES PROVIDED AND PROFITS REALIZED FROM THE RELATIONSHIP WITH
THE FUND.
The Board members considered the fees paid to GEAM by the Fund and the cost of
the services provided to the Fund by GEAM. The Board members reviewed the
information they had requested from GEAM concerning its profitability. The
Board members considered the profit margin information for GEAM's investment
company business as a whole, as well as GEAM's profitability data for the Fund.
In this regard, the Board members considered the expense limitation agreement
between the Fund and GEAM, pursuant to which GEAM had agreed to limit the total
operating expenses of the Fund, which expired on April 30, 2009, and that since
May 1, 2009, GEAM has agreed to waive 0.02% of its management fee for a one
year period. The Board members reviewed GEAM's assumptions and the methods of
cost allocation used by GEAM in preparing Fund-specific profitability data. The
Board members also discussed with GEAM the basis for its belief that the
methods of allocation used were reasonable for each area of its business.
Information was presented regarding the financial condition of GEAM for various
past periods. The Board members noted and discussed the additional services
provided by GEAM to the Fund compared to other investment products managed by
GEAM, and were provided a study conducted by the Investment Company Institute
that discusses and compares advisory fees and services for mutual funds and
institutional separate accounts. The Board members determined that GEAM should
be entitled to earn a reasonable level of profits for the services it provides
to the Fund. The Board members also recognized that GEAM had made significant
investments in its business and had not fully recovered the sums invested. The
Board also considered that, in the face of overall declining assets and
revenues over the course of the past year, GEAM continues to make a substantial
investment in fulfilling its obligations to the Fund and supporting its
Fund-related activities.
Based on their review, the Board, including the independent Board members,
concluded that they were satisfied that the level of profitability achieved by
GEAM from its relationship with the Fund was not unreasonable or excessive.
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS AND
WHETHER FEE LEVELS WOULD REFLECT SUCH ECONOMIES OF SCALE.
Although the Board noted that the Fund did not experience significant growth in
assets over the past year, the Board members considered the extent to which
economies of scale would be realized as the Fund grows, and whether fee levels
reflect these economies of scale for the benefit of Fund investors.
44
Advisory and Administrative Agreement Approvals (unaudited)
- ---------------------------------------------------------------
The Board members considered the substantial infrastructure investments that
GEAM has made with respect to its operations and its commitment to continue
investing resources to enhance services to Fund shareholders. The Board members
recognized the benefits to the Fund of GEAM's past investment in its operations
through the expenditure of sums to support its substantial infrastructure, and
that, with respect to all GEAM managed mutual funds, GEAM has not yet fully
recouped that investment. The Board members also recognized the benefits to the
Fund of being able to leverage a favorable cost structure achieved with respect
to the Fund's other operating expenses as a result of GEAM's large overall base
of assets under management and its vendor management practices.
COMPARISON OF SERVICES TO BE RENDERED AND FEES TO BE PAID.
The Board members discussed the services provided to the Fund by GEAM, and the
fees charged for those services. The Board members reviewed information
concerning the fee and expense ratios for the Fund, and comparative information
with respect to similar products. They discussed that the Fund's figures were
within the applicable peer group range. In light of the foregoing, the Board,
including the independent Board members, determined that the advisory fees were
reasonable in relation to the services provided to the Fund.
FALL-OUT BENEFITS.
The Board members considered other actual and potential financial benefits that
GEAM may derive from its relationship with the Fund, including, to the extent
applicable, soft dollar commission benefits generated through Fund portfolio
transactions. The Board members noted, however, that the Fund benefits from the
vast array of resources available through GEAM, and that the Fund represents
only a small portion of the assets managed by GEAM.
CONCLUSION.
No single factor was determinative to the Board's decision. Based on their
discussion and such other matters as were deemed relevant, the Board, including
the independent Board members, concluded that renewal of the advisory agreement
was in the best interests of the Fund and its shareholders.
45
Additional Information (unaudited)
- ---------------------------------------------------------------
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS:
The business and affairs of the Company are managed under the direction of the
Company's Board of Directors. Information pertaining to the Directors and
officers of the Company is set forth below.
INTERESTED DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
MICHAEL J. COSGROVE
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
POSITION(S) HELD WITH FUND Chairman of the Board and President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS President and Chief Executive
Officer - Mutual Funds and Intermediary Business since March 2007; Executive
Vice President of GEAM from February 1997 to March 2007; Director of GEAM since
1988; Vice President, GE Capital Corporation, an indirect wholly-owned
subsidiary of GE, since December 1999; Executive Vice President - Sales and
Marketing of GEAM, a wholly-owned subsidiary of GE that is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, from
March 1993 to March 2007.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 51
OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE
Funds since 1993, and GE Institutional Funds since its inception; Trustee of
General Electric Savings & Security Trust, General Electric S&S Income Fund,
General Electric S&S Program Mutual Fund ("GE Savings & Security Funds"), Elfun
Funds, General Electric Insurance Plan Trust, General Relief Loan Fund, and
General Electric Pension Trust since 1988; Trustee of Fordham University since
2002; Trustee of GE Volunteers since 1993; Director, GE Asset Management
(Ireland) since February 1999; Director, GE Asset Management Funds Plc., GE
Asset Canada Company, and GE Asset Management Limited since 1998.
- --------------------------------------------------------------------------------
MATTHEW J. SIMPSON
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 48
POSITION(S) HELD WITH FUND Director and Executive Vice President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 2 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President, General
Counsel and Secretary of GEAM since July 2007; Senior Vice President and
General Counsel - Marketing and Client Services (formerly Asset Management
Services), at GEAM and Senior Vice President and General Counsel of GEAMS from
February 1997 to June 2007; Vice President and Associate General Counsel of
GEAM from October 1992 to February 1997; Secretary of Fund from 1997 to June
2007; Vice President of Fund from September 2003 to June 2007; Vice President
of GE Institutional Funds from September 2003 to June 2007; Secretary of GE
Institutional Funds and GE LifeStyle Funds from 1997 to June 2007; Vice
President of Elfun Funds and GE Savings & Security Funds from October 2003 to
June 2007; Assistant Secretary of Elfun Funds and GE Savings & Security Funds
from 1998 to June 2007.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 51
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds, GE Institutional
Funds, Elfun Funds and GE Savings & Security Funds since July 2007.
46
Additional Information (unaudited)
- ---------------------------------------------------------------
- --------------------------------------------------------------------------------
SCOTT H. RHODES
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 49
POSITION(S) HELD WITH FUND Treasurer
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 3 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS GEAM Mutual Funds Operations
Manager since September 2005; Treasurer of GE Institutional Funds, GE LifeStyle
Funds and GE Investments Funds since November 2005 and Elfun Funds and GE
Savings & Security Funds since September 2005; from August 2004 to September
2005 Vice President, U.S. Trust Company, N.A. and Assistant Treasurer of
Excelsior Funds, Inc., Excelsior Funds Trust, and Excelsior Tax Exempt Funds,
Inc.; from January 2004 to August 2004, Vice President BlackRock Financial
Management, Inc.; from December 1996 to November 2003, Controller - Mutual
Funds, American Skandia Investment Services, Inc. and Assistant Treasurer of
American Skandia Trust and American Skandia Advisor Funds, Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
JEANNE M. LAPORTA
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 44
POSITION(S) HELD WITH FUND Vice President and Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 5 years (Vice President); 3 years (Secretary)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Senior Vice President and Deputy
General Counsel at GE Asset Management since October 2007; Vice President and
Associate General Counsel - Marketing and Client Services (formerly Asset
Management Services) at GEAM from May 1997 to October 2007; Vice President and
Assistant Secretary of GE Funds and GE Institutional Funds from September 2003
to July 2007; Vice President and Secretary of GE Funds and GE Institutional
Funds since July 2007; Vice President and Assistant Secretary of Elfun Funds
and GE Savings & Security Funds since October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
47
Additional Information (unaudited)
- ---------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 63
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS General Partner, NGN Capital LLC
since 2006; Managing Director, Vice President of Walden Capital Management
since 1996.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, GE
Institutional Funds since its inception; Trustee of Fordham University from
1989 to 1995 and 2001 to 2007 and Trustee Emeritus since 2007; Trustee of
NeuroScience Research Institute since 1986; Trustee of Gregorian University
Foundation from 1992 to 2007; Director of Artes medical from 2006 to 2008.
- --------------------------------------------------------------------------------
WILLIAM J. LUCAS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 62
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Treasurer of
Fairfield University since 1983.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds since its inception.
- --------------------------------------------------------------------------------
ROBERT P. QUINN
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 74
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon
Brothers Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds since its inception; Trustee, St. Francis Hospital Corp.
- --------------------------------------------------------------------------------
The Statement of Additional Information for the Fund includes additional
information about the Directors and Officers and is available, without charge,
upon request by calling 1-800-493-3042.
48
Investment Team
- ----------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
GE Asset Management Incorporated
BOARD OF DIRECTORS
Michael J. Cosgrove, CHAIRMAN
John R. Costantino
William J. Lucas
Robert P. Quinn
Matthew J. Simpson
SECRETARY
Jeanne M. LaPorta
ASSISTANT SECRETARIES
Joseph A. Carucci
Joon Won Choe
Kimberley Costello
Michelle Matzelle
TREASURER
Scott H. Rhodes
ASSISTANT TREASURERS
Scott R. Fuchs
Christopher M. Isaacs
DISTRIBUTOR
GE Investment Distributors, Inc.
Member FINRA and SIPC
COUNSEL
Sutherland, Asbill & Brennan, LLP
CUSTODIAN
State Street Bank & Trust Company
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
OFFICERS OF THE INVESTMENT ADVISER
James W. Ireland, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Cheryl H. Beacock, SENIOR VICE PRESIDENT, HUMAN RESOURCES
Daniel O. Colao, EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER
Michael J. Cosgrove, PRESIDENT AND CHIEF EXECUTIVE OFFICER - MUTUAL FUNDS &
INTERMEDIARY BUSINESS
Paul M. Colonna, PRESIDENT AND CHIEF INVESTMENT OFFICER - FIXED INCOME
INVESTMENTS
Amiel Goldberg, SENIOR VICE PRESIDENT, CHIEF RISK OFFICER
Ralph R. Layman, PRESIDENT AND CHIEF INVESTMENT OFFICER - PUBLIC EQUITY
INVESTMENTS (SINCE JULY 2009)
Maureen B. Mitchell, PRESIDENT - INSTITUTIONAL SALES AND MARKETING (SINCE JULY
2009)
Matthew J. Simpson, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
Judith A. Studer, CHIEF MARKET STRATEGIST (SINCE JULY 2009)
Don W. Torey, PRESIDENT - ALTERNATIVE INVESTMENTS
John J. Walker, EXECUTIVE VICE PRESIDENT, CHIEF OPERATING OFFICER
David Wiederecht, PRESIDENT AND CHIEF INVESTMENT OFFICER - INVESTMENT STRATEGIES
49
INVESTMENT ADVISER
GE ASSET MANAGEMENT INCORPORATED
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
DISTRIBUTOR
GE INVESTMENT DISTRIBUTORS, INC.
MEMBER FINRA AND SIPC
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission for the first and third quarters of each
fiscal year on Form N-Q. The Fund's Forms N-Q, as well as a description of
the policies and procedures that the Fund uses to determine how to vote
proxies (if any) relating to portfolio securities is available without
charge (i) upon request, by calling 1-800-493-3042; (ii) on the Fund's
website at http://www.geam.com; and (iii) on the Commission's website at
http://www.sec.gov. The Fund's Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC--information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to
portfolio securities during the most recently disclosed 12-month period
ended June 30 is available without charge (i) through the Fund's website at
http://www.geam.com; and (ii) on the Commission's website at
http://www.sec.gov.
[LOGO] GE
GE Investments Funds, Inc.
U.S. Equity Fund
Annual Report
December 31, 2009
[LOGO] GE
GE Investments Funds, Inc.
U.S. Equity Fund Contents
- ------------------------------------------------------------
NOTES TO PERFORMANCE.................................... 1
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS.............. 6
NOTES TO SCHEDULE OF INVESTMENTS........................ 10
FINANCIAL STATEMENTS
Financial Highlights................................. 11
Statement of Assets and Liabilities.................. 12
Statement of Operations.............................. 13
Statements of Changes in Net Assets.................. 14
Notes to Financial Statements........................ 15
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. 23
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL........... 24
ADDITIONAL INFORMATION.................................. 27
INVESTMENT TEAM......................................... 30
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
Notes to Performance December 31, 2009
- ---------------------------------------------------------------------
Information on the following performance pages relating
to the GE Investments U.S. Equity Fund one year total return and Schedule of
Investments is audited. All other information, including the portfolio manager
Q&A pages, is unaudited.
Total returns take into account changes in share price and assume reinvestment
of all dividends and capital gains distributions, if any. Total returns shown
are net of Fund expenses but do not reflect fees and charges associated with
the variable contracts such as administrative fees, account charges and
surrender charges, which, if reflected, would reduce the Fund's total returns
for all periods shown.
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be higher or lower than the performance
data quoted. Periods less than one year are not annualized. Please call
800-493-3042 or visit the Fund's website at http://www.geam.com for the most
recent month-end performance data.
An investment in a Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency. An investment in a Fund is subject to risk, including
possible loss of principal invested.
The Standard & Poor's ("S&P") 500(R) Composite Price Index of stocks (S&P 500
Index) is an unmanaged index and does not reflect the actual cost of investing
in the instruments that comprise the index.
The S&P 500 Index is a market capitalization-weighted index of stocks of 500
large U.S. companies, which is widely used as a measure of large-cap stock
market performance. The results shown for the foregoing index assume the
reinvestment of net dividends or interest.
The peer universe of the underlying annuity funds used in our peer group
average return calculation is based on the blend of Morningstar peer
categories, as shown. Morningstar is an independent mutual fund rating service.
A Fund's performance may be compared to or ranked within a universe of mutual
funds with investment objectives and policies similar but not necessarily
identical to the Fund's.
(C)2009 Morningstar, Inc. All Rights Reserved. The information contained
herein: (1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is no warranted to be accurate, complete
or timely. Neither Morningstar nor its content providers are responsible for
any damage or losses relating from any use of this information. Past
performance is no guarantee or future results.
- --------------
GE INVESTMENT DISTRIBUTORS, INC., MEMBER OF FINRA & SIPC, IS THE PRINCIPAL
UNDERWRITER AND DISTRIBUTOR OF THE GE INVESTMENT FUNDS, INC. AND A WHOLLY OWNED
SUBSIDIARY OF GE ASSET MANAGEMENT INCORPORATED, THE INVESTMENT ADVISER OF THE
FUND.
1
U.S. Equity Fund
- --------------------------------------------------------------------------------
[PHOTO] George A. Bicher
GEORGE A. BICHER
[PHOTO] Stephen V. Gelhaus
STEPHEN V. GELHAUS
[PHOTO] Thomas R. Lincoln
THOMAS R. LINCOLN
[PHOTO] Paul C. Reinhardt
PAUL C. REINHARDT
THE U.S. EQUITY FUND IS MANAGED BY A TEAM OF PORTFOLIO MANAGERS THAT INCLUDES
GEORGE A. BICHER, PAUL C. REINHARDT, STEPHEN V. GELHAUS AND THOMAS R. LINCOLN.
EACH OF THE FOREGOING PORTFOLIO MANAGERS MANAGES (OR CO-MANAGES) ONE OF THREE
SUB-PORTFOLIOS, WHICH COMPRISE THE FUND. A SUB-PORTFOLIO REFERS TO THE PORTION
OF THE FUND'S ASSETS THAT ARE ALLOCATED TO, AND MANAGED BY, A PARTICULAR
PORTFOLIO MANAGER ON THE FUND'S PORTFOLIO MANAGEMENT TEAM. THE THREE
SUB-PORTFOLIOS ARE MANAGED INDEPENDENTLY OF EACH OTHER AND THE PORTFOLIO
MANAGERS HAVE FULL DISCRETION OVER THEIR SUB-PORTFOLIO. THE WEIGHTINGS TO EACH
SUB-PORTFOLIO IN THE U.S. EQUITY FUND, CAN BE CHANGED AT ANY TIME BUT GENERALLY
REMAIN STABLE FOR 18 TO 24 MONTHS.
GEORGE A. BICHER IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. MR. BICHER
IS DIRECTOR OF THE U.S. EQUITY RESEARCH TEAM AND A PORTFOLIO MANAGER FOR THE
U.S. EQUITY FUND. MR. BICHER HAS HELD THE POSITION OF EQUITY RESEARCH ANALYST
SINCE JOINING GE ASSET MANAGEMENT IN JUNE 2002. PRIOR TO JOINING GE ASSET
MANAGEMENT, HE SERVED IN A NUMBER OF POSITIONS AT DEUTSCHE BANC ALEX BROWN
SINCE 1994.
STEPHEN V. GELHAUS IS A VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS BEEN A
MEMBER OF THE PORTFOLIO MANAGEMENT TEAM FOR THE U.S. EQUITY FUND SINCE JANUARY
2002. MR. GELHAUS JOINED GE ASSET MANAGEMENT IN JUNE 1991 AND WAS A RESEARCH
ANALYST IN THE U.S. EQUITIES GROUP FROM 1995 THROUGH 2001.
THOMAS R. LINCOLN IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS
BEEN A MEMBER OF THE PORTFOLIO MANAGEMENT TEAM FOR THE U.S. EQUITY FUND SINCE
MAY 2007. MR. LINCOLN JOINED GE ASSET MANAGEMENT IN 1994 AS A FINANCIAL ANALYST
IN U.S. EQUITIES. MR. LINCOLN BECAME PART OF THE INVESTMENT MANAGEMENT TEAM FOR
U.S. EQUITIES AT GE ASSET MANAGEMENT IN 1997 AND A PORTFOLIO MANAGER FOR U.S.
EQUITIES IN 2003.
PAUL C. REINHARDT IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS
BEEN A PORTFOLIO MANAGER FOR THE U.S. EQUITY FUND SINCE JANUARY 2001.
MR. REINHARDT JOINED GE ASSET MANAGEMENT IN 1982 AS AN EQUITY ANALYST AND HAS
BEEN A PORTFOLIO MANAGER SINCE 1987.
Q. HOW DID THE U.S. EQUITY FUND PERFORM COMPARED TO ITS BENCHMARK AND
MORNINGSTAR PEER GROUP FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2009?
A. For the twelve-month period ended December 31, 2009, the U.S. Equity Fund
returned 31.63% for Class 1 shares and 31.05% for Class 4 shares. The S&P
500 Index, the Fund's benchmark, returned 26.46% and the Fund's Morningstar
peer group of 464 U.S. Insurance Large Blend funds returned an average of
28.47% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE?
A. The U.S. equity markets fell sharply through early March against a backdrop
of severe global economic recession, falling home prices, and the prospect
of huge losses by global financial institutions. After the U.S. government
passed a $790 billion stimulus bill and the Federal Reserve announced plans
to pump $1.25 trillion into the economy, the S&P 500 rallied 67% through
year-end off its March 9 intraday low. In addition to the unprecedented
fiscal and monetary stimulus, stocks were supported by earnings reports in
the second and third quarter that generally beat expectations, a pick-up in
corporate acquisition activity, and strong free cash flow as companies cut
capital spending and reduced their cost structures. Despite this strong
snap-back, the S&P 500 still remained 29% below the high it reached in
October 2007. The federal funds target rate has remained historically low --
close to zero -- for a full year, and the U.S. equity markets have applauded
the Federal Reserve's pledge to keep interest rates low for an "extended
period."
Sector allocation has been important in this environment, as only the
technology (+62%), materials (+49%), and consumer discretionary (+42%)
sectors outperformed the S&P 500 in 2009 while the more defensive sectors
lagged. Despite a 78% rise in the WTI crude price over the year, the S&P
2
- --------------------------------------------------------------------------------
[GRAPHIC]
500 Energy sector rose only 14% in 2009, well below the 26.5% rally of the
broader S&P 500 Index. In this context, the growth style of investing
outperformed the value style, with the strongest returns coming from medium
capitalization companies. Careful stock selection was warranted in the
financials sector, which plummeted 29% in the first quarter but advanced a
whopping 140% off of March lows, reflecting relief that the sector would
remain intact. This was reinforced by the fact that most large U.S. banks
passed their stress tests and credit markets strengthened. By year-end,
several large commercial and investment banks had reimbursed the U.S.
Treasury for the government TARP investments. Going forward, we do not
expect the markets to simply reward survivorship with performance since
earnings estimate achievability should matter more prospectively.
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE?
A. Strong stock selection among energy companies was a key driver of Fund
performance, despite the fact that the sector overall showed lackluster
performance. Emphasizing energy services companies over the large integrated
oil companies paid off amid weak end market demand in refining and
marketing. Transocean (+89%) and Schlumberger (+56%) were key contributors
and continued to be held at year-end. Good stock selection in financials
also benefited the Fund, as large positions in CME Group (+64%), Goldman
Sachs (+103%) and several life insurance companies outperformed the market.
One theme for these holdings was financial strength and the ability to take
market share and emerge from the recession as a stronger competitor.
A beneficial underweight in the defensive consumer staples sector was
another driver to Fund performance, as this group underperformed the market
averages. Later in the year, Proctor Gamble was increased to an overweight
and averaged a 15% return during the period it was held. Other key
single-stock contributors included Genentech, which rallied 14% on Roche's
acquisition bid, and Freeport McMoRan Copper & Gold (+229%) which surged
along with copper prices during the year. The strength in Genentech -- an
out of benchmark holding -- was enough to offset weakness in some of our
other health care holdings, including Amgen (-2%) and Gilead (-15%) as
biotech companies broadly underperformed.
Consumer discretionary and technology were the only two sectors to detract
from relative performance this year. In consumer discretionary, the Fund
missed strong recovery rallies in Internet retailers (e.g., Amazon and
Expedia which proved too expensive for ownership) and automobile stocks,
which generally lacked the degree of quality we seek in long term holdings.
In the media sector, Comcast (+1%) also underperformed amid disappointing
subscription growth. Within technology, while the Fund enjoyed strength in
many of its diverse holdings, an underweight in Apple (+147%) created the
main drag.
Q. WERE THERE ANY SIGNIFICANT CHANGES TO THE FUND OVER THE PERIOD?
A. We continued to seek large cap, high quality companies that we felt had the
potential to survive and grow market share during the down-cycle, and in a
gradual recovery. We maintained a consistent emphasis on companies with
strong balance sheets and earnings stability, over more cyclical or
leveraged opportunities. We took advantage of relative underperformance in
high-quality brand-name companies, to add several new positions during the
year; among the positions established were Baxter International, Johnson &
Johnson and Proctor & Gamble. We reduced our holdings in technology --
selling Affiliated Computer Systems and several semiconductor companies --
although technology remained the Fund's largest sector position. We took
advantage of relative weakness in energy to boost our exposure to that
sector, which we believe faces tremendous long-term supply-demand
imbalances. At year-end, the Fund's largest overweights were in technology,
health care and financials, and the largest underweights were in consumer
staples, industrials and utilities.
Valuations for many companies remain attractive, even after the strong
rebound from March through year-end. While lower quality companies
outperformed during the rally, we believe any future market rally will be
dominated by outperformance by market share winners with strong balance
sheets and management teams. Amid rapidly changing market conditions we have
maintained our bottom-up stock selection approach with focus on a long-term
investment horizon.
3
U.S. Equity Fund
- --------------------------------------------------------------------------------
Understanding Your Fund's Expenses
As a shareholder of the Fund you incur ongoing expenses, which include
portfolio management fees, professional fees, administrative fees and other
Fund expenses. The following example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors during the period. The information in the
following table is based on an investment of $1,000, which is invested at the
beginning of the period and held for the entire six-month period ended
December 31, 2009.
ACTUAL EXPENSES
The first section of the table provides information about actual account values
and actual expenses. You may use the information in this section, together with
the amount you invested, to estimate the expenses that you paid over the
period. To do so, simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and
an assumed rate of return of 5% per year before expenses, which is not the
Fund's actual return. You may use this information to compare the ongoing costs
of investing in the Fund and other funds. To do so, compare this 5%
hypothetical example with the 5% hypothetical examples that appear in the
shareholders reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2009 - DECEMBER 31, 2009
- ----------------------------------------------------------------------------------------------
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID
BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) DURING THE PERIOD ($)*
- ----------------------------------------------------------------------------------------------
ACTUAL FUND RETURN**
- ----------------------------------------------------------------------------------------------
Class 1 $1,000.00 $1,192.45 4.75
Class 4 $1,000.00 $1,189.75 7.12
- ----------------------------------------------------------------------------------------------
HYPOTHETICAL 5% RETURN (2.5% FOR THE PERIOD)
- ----------------------------------------------------------------------------------------------
Class 1 $1,000.00 $1,020.66 4.38
Class 4 $1,000.00 $1,018.53 6.56
- ----------------------------------------------------------------------------------------------
*EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.86% FOR CLASS 1
SHARES AND 1.29% FOR CLASS 4 SHARES (FOR THE PERIOD JULY 1, 2009 - DECEMBER
31, 2009), MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED
BY 184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD)
**ACTUAL FUND RETURNS FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2009 WERE AS
FOLLOWS: 19.25% FOR CLASS 1 SHARES, AND 18.98% FOR CLASS 4 SHARES.
4
U.S. Equity Fund
- --------------------------------------------------------------------------------
CHANGE IN VALUE OF A $10,000 INVESTMENT
CLASS 1 SHARES
- --------------------------------------------------------------------------------
[CHART]
U.S. Equity Fund S&P 500 Index
---------------- --------------
12/99 10,000.00 10,000.00
12/00 9,941.00 9,081.65
12/01 9,098.69 7,999.85
12/02 7,346.03 6,231.73
12/03 9,055.87 8,021.99
12/04 9,795.40 8,894.89
12/05 10,041.15 9,332.39
12/06 11,659.98 10,806.20
12/07 12,593.93 11,400.06
12/08 8,053.27 7,182.28
12/09 10,600.24 9,083.04
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 2009
- --------------------------------------------------------------------------------
CLASS 1 SHARES (Inception date: 1/3/95)
- --------------------------------------------------------------------------------
ONE FIVE TEN ENDING VALUE OF A
YEAR YEAR YEAR $10,000 INVESTMENT
-----------------------------------------------------------------------
U.S. Equity Fund 31.63% 1.59% 0.58% 10,600
-----------------------------------------------------------------------
S&P 500 Index 26.46% 0.42% -0.96% 9,083
-----------------------------------------------------------------------
Morningstar peer group average* 28.47% 0.39% -0.81%
-----------------------------------------------------------------------
CLASS 4 SHARES
- --------------------------------------------------------------------------------
[CHART]
U.S. Equity Fund S&P 500 Index
--------------- -------------
5/1/08 10,000.00 10,000.00
6/08 9,303.51 9,275.57
9/08 8,626.84 8,499.21
12/08 6,574.78 6,634.20
3/09 6,103.69 5,903.65
6/09 7,241.92 6,844.05
9/09 8,260.18 7,912.13
12/09 8,616.08 8,389.91
- --------------------------------------------------------------------------------
TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 2009
- --------------------------------------------------------------------------------
CLASS 4 SHARES (Inception date: 5/1/08)
- --------------------------------------------------------------------------------
ONE SINCE ENDING VALUE OF A
YEAR INCEPTION $10,000 INVESTMENT
-----------------------------------------------------------------------
U.S. Equity Fund 31.05% -8.53% 8,616
-----------------------------------------------------------------------
S&P 500 Index 26.46% -9.99% 8,390
-----------------------------------------------------------------------
Morningstar peer group average** 28.47%
-----------------------------------------------------------------------
INVESTMENT PROFILE [GRAPHIC]
A mutual fund designed for investors
who seek long-term growth of capital
by investing at least 80% of its net
assets in common and preferred stocks
and other types of equity securities
of issuers that are tied economically
to the U.S. under normal
circumstances.
PORTFOLIO COMPOSITION AS OF DECEMBER 31, 2009
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $41,894 (in thousands)
[CHART]
Information Technology 22.3%
Healthcare 15.3%
Financials 15.2%
Energy 11.6%
Consumer Discretionary 8.7%
Consumer Staples 8.0%
Industrials 7.7%
Materials 4.2%
Telecommunication Services 3.2%
Utilities 2.0%
Short-Term 1.8%
Other Investments 0.0%***
TOP TEN LARGEST HOLDINGS
AS OF DECEMBER 31, 2009
as a % of Market Value
--------------------------------------------
Microsoft Corp. 3.41%
--------------------------------------------
--------------------------------------------
PepsiCo, Inc. 2.90%
--------------------------------------------
--------------------------------------------
Amgen Inc. 2.69%
--------------------------------------------
--------------------------------------------
Cisco Systems, Inc. 2.47%
--------------------------------------------
--------------------------------------------
QUALCOMM Inc. 2.29%
--------------------------------------------
--------------------------------------------
International Business Machines Corp. 2.15%
--------------------------------------------
--------------------------------------------
The Goldman Sachs Group, Inc 2.13%
--------------------------------------------
--------------------------------------------
Schlumberger Ltd. 2.01%
--------------------------------------------
--------------------------------------------
The Procter & Gamble Co. 1.84%
--------------------------------------------
--------------------------------------------
Exxon Mobil Corp. 1.79%
--------------------------------------------
* MORNINGSTAR PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS
FOR THE ONE YEAR, FIVE-YEAR, AND TEN-YEAR PERIODS INDICATED IN THE LARGE
BLEND PEER GROUP CONSISTING OF 464, 337 AND 182 UNDERLYING ANNUITY FUNDS,
RESPECTIVELY.
**MORNINGSTAR PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS
FOR THE ONE YEAR PERIOD INDICATED IN THE LARGE BLEND PEER GROUP CONSISTING OF
464 UNDERLYING ANNUITY FUNDS.
***LESS THAN 0.01%.
SEE NOTES TO PERFORMANCE ON PAGE 1 FOR FURTHER INFORMATION, INCLUDING AN
EXPLANATION OF MORNINGSTAR PEER CATEGORIES.
PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPH AND TABLE DO
NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
5
U.S. EQUITY FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
U.S. EQUITY FUND
NUMBER
OF SHARES VALUE
COMMON STOCK -- 96.3%+
----------------------------------------------------------------
AEROSPACE & DEFENSE -- 2.9%
Alliant Techsystems, Inc........... 1,071 $ 94,537 /(a)/
CAE, Inc........................... 22,448 187,789
Hexcel Corp........................ 6,260 81,255 /(a)/
Honeywell International Inc........ 7,254 284,357
ITT Corp........................... 5,075 252,430
Rockwell Collins, Inc.............. 3,317 183,629
United Technologies Corp........... 2,137 148,329
1,232,326
BEVERAGES -- 3.2%
Brown-Forman Corp. (Class B)....... 254 13,607
Molson Coors Brewing Co. (Class B). 2,367 106,894
PepsiCo, Inc....................... 19,956 1,213,325
1,333,826
BIOTECHNOLOGY -- 4.4%
Amgen Inc.......................... 19,927 1,127,270 /(a)/
Gilead Sciences, Inc............... 16,906 731,692 /(a)/
1,858,962
CAPITAL MARKETS -- 5.5%
Ameriprise Financial, Inc.......... 4,998 194,022
Morgan Stanley..................... 3,927 116,239
State Street Corp.................. 16,815 732,125 /(c)/
The Bank of New York Mellon Corp... 8,747 244,654
The Charles Schwab Corp............ 5,413 101,873
The Goldman Sachs Group, Inc....... 5,289 892,995
2,281,908
CHEMICALS -- 2.4%
Air Products & Chemicals, Inc...... 223 18,076
Monsanto Co........................ 5,599 457,718
Potash Corp of Saskatchewan Inc.... 1,517 164,594
Praxair, Inc....................... 3,236 259,883
The Mosaic Company................. 1,390 83,025
983,296
COMMERCIAL BANKS -- 0.5%
Regions Financial Corp............. 15,397 81,450
US Bancorp......................... 4,017 90,423
Wells Fargo & Co................... 1,561 42,131
214,004
NUMBER
OF SHARES VALUE
COMMERCIAL SERVICES & SUPPLIES -- 0.9%
Corrections Corporation of America.... 7,694 $ 188,888 /(a)/
Iron Mountain Inc..................... 8,222 187,133 /(a)/
376,021
COMMUNICATIONS EQUIPMENT -- 6.2%
Cisco Systems, Inc.................... 43,142 1,032,819 /(a)/
Motorola, Inc......................... 2,082 16,156
QUALCOMM Inc.......................... 20,758 960,265
Research In Motion Ltd................ 8,483 572,942 /(a)/
2,582,182
COMPUTERS & PERIPHERALS -- 3.8%
Apple Inc............................. 314 66,210 /(a)/
Hewlett-Packard Co.................... 12,405 638,982
International Business Machines Corp.. 6,882 900,854
1,606,046
CONSUMER FINANCE -- 0.3%
Capital One Financial Corp............ 3,270 125,372
DIVERSIFIED FINANCIAL SERVICES -- 4.7%
Bank of America Corp.................. 44,049 663,378
CME Group Inc......................... 1,794 602,694
JPMorgan Chase & Co................... 17,127 713,682
1,979,754
DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.1%
AT&T Inc.............................. 11,157 312,731
Verizon Communications Inc............ 4,463 147,859 /(d)/
460,590
ELECTRIC UTILITIES -- 1.4%
Edison International.................. 6,248 217,305
Entergy Corp.......................... 1,339 109,584
FPL Group, Inc........................ 2,221 117,313
Northeast Utilities................... 6,108 157,525
601,727
ELECTRICAL EQUIPMENT -- 0.7%
ABB Ltd. ADR.......................... 10,711 204,580 /(a)/
Emerson Electric Co................... 1,744 74,294
278,874
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 0.6%
Corning Inc........................... 12,980 250,644
ENERGY EQUIPMENT & SERVICES -- 4.0%
Halliburton Co........................ 6,828 205,455
National Oilwell Varco, Inc........... 2,455 108,241 /(a)/
Schlumberger Ltd...................... 12,962 843,697
Transocean Ltd........................ 6,330 524,124 /(a)/
1,681,517
See Notes to Schedules of Investments on page 10 and Notes to Financial
Statements on page 15.
6
U.S. EQUITY FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
NUMBER
OF SHARES VALUE
FOOD & STAPLES RETAILING -- 0.1%
CVS Caremark Corp............... 1,785 $ 57,495
FOOD PRODUCTS -- 1.4%
Archer-Daniels-Midland Co....... 1,786 55,920
Kraft Foods Inc. (Class A)...... 4,373 118,858
McCormick & Company Inc......... 8,125 293,556
Nestle S.A. ADR................. 2,231 107,869
576,203
HEALTHCARE EQUIPMENT & SUPPLIES -- 4.4%
Baxter International Inc........ 4,940 289,879
Becton Dickinson & Co........... 2,433 191,866
Boston Scientific Corp.......... 9,818 88,362 /(a)/
Covidien PLC.................... 14,641 701,157
Hologic, Inc.................... 7,620 110,490 /(a)/
Medtronic, Inc.................. 4,915 216,162
ResMed, Inc..................... 4,788 250,269 /(a)/
1,848,185
HEALTHCARE PROVIDERS & SERVICES -- 2.7%
Aetna Inc....................... 3,232 102,454
Cardinal Health, Inc............ 6,337 204,305
Express Scripts, Inc............ 5,346 462,162 /(a)/
McKesson Corp................... 1,071 66,937
UnitedHealth Group, Inc......... 9,916 302,240
1,138,098
HOTELS RESTAURANTS & LEISURE -- 0.4%
Carnival Corp................... 5,924 187,732 /(a)/
HOUSEHOLD DURABLES -- 0.1%
MDC Holdings, Inc............... 699 21,697
HOUSEHOLD PRODUCTS -- 2.3%
Clorox Co....................... 1,027 62,647
Kimberly-Clark Corp............. 1,964 125,126
The Procter & Gamble Co......... 12,688 769,273
957,046
INDUSTRIAL CONGLOMERATES -- 0.5%
Siemens AG ADR.................. 714 65,474
Textron, Inc.................... 7,771 146,173
211,647
INSURANCE -- 3.2%
ACE Ltd......................... 5,776 291,110
AFLAC Inc....................... 4,655 215,294
AON Corp........................ 2,945 112,911
MetLife, Inc.................... 5,802 205,101
PartnerRe Ltd................... 1,555 116,096
Principal Financial Group, Inc.. 4,909 118,012
Prudential Financial, Inc....... 5,549 276,118
1,334,642
NUMBER
OF SHARES VALUE
INTERNET SOFTWARE & SERVICES -- 1.3%
AOL Inc.............................. 1,367 $ 31,824 /(a)/
Baidu, Inc ADR....................... 251 103,219 /(a)/
Google Inc. (Class A)................ 638 395,547 /(a)/
530,590
IT SERVICES -- 3.6%
Accenture PLC........................ 568 23,572
Cognizant Technology Solutions Corp.
(Class A)........................... 4,124 186,817 /(a)/
Paychex, Inc......................... 3,789 116,095
The Western Union Co................. 38,110 718,373
Visa, Inc. (Class A)................. 5,336 466,687
1,511,544
LIFE SCIENCES TOOLS & SERVICES -- 0.9%
Life Technologies Corp............... 2,614 136,529 /(a)/
Thermo Fisher Scientific, Inc........ 5,037 240,215 /(a)/
376,744
MACHINERY -- 1.0%
Deere & Co........................... 3,660 197,969
Eaton Corp........................... 2,455 156,187
Navistar International Corp.......... 1,677 64,816 /(a)/
418,972
MEDIA -- 4.0%
Comcast Corp. (Class A).............. 2,006 32,116
DIRECTV (Class A).................... 7,242 241,521 /(a)/
Liberty Global, Inc. (Series C)...... 6,641 145,106 /(a)/
Omnicom Group Inc.................... 16,745 655,567
The Walt Disney Co................... 4,909 158,315
Time Warner Inc...................... 15,038 438,207
1,670,832
METALS & MINING -- 1.6%
Allegheny Technologies Inc........... 6,908 309,271
Barrick Gold Corp.................... 2,678 105,460
Freeport-McMoRan Copper & Gold Inc... 3,019 242,395 /(a)/
657,126
MULTILINE RETAIL -- 1.2%
Kohl's Corp.......................... 1,546 83,376 /(a)/
Target Corp.......................... 8,556 413,854
497,230
MULTI-UTILITIES -- 0.5%
Dominion Resources, Inc.............. 5,579 217,135
See Notes to Schedules of Investments on page 10 and Notes to Financial
Statements on page 15.
7
U.S. EQUITY FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
NUMBER
OF SHARES VALUE
OIL, GAS & CONSUMABLE FUELS -- 7.7%
Apache Corp............................ 2,805 $ 289,392
Chesapeake Energy Corp................. 1,250 32,350
Chevron Corp........................... 6,724 517,681
Devon Energy Corp...................... 5,121 376,393
Exxon Mobil Corp....................... 11,025 751,795 /(d)/
Marathon Oil Corp...................... 15,828 494,150
Occidental Petroleum Corp.............. 3,776 307,178
Southwestern Energy Co................. 4,449 214,442 /(a)/
Suncor Energy Inc...................... 6,106 215,603
3,198,984
PAPER & FOREST PRODUCTS -- 0.3%
Weyerhaeuser Co........................ 2,678 115,529
PERSONAL PRODUCTS -- 0.1%
Avon Products, Inc..................... 893 28,129
PHARMACEUTICALS -- 2.9%
Abbott Laboratories.................... 1,339 72,293
Bristol-Myers Squibb Co................ 19,275 486,694
Johnson & Johnson...................... 5,133 330,617
Merck & Company Inc.................... 982 35,882
Pfizer Inc............................. 14,951 271,959
1,197,445
REAL ESTATE MANAGEMENT & DEVELOPMENT -- 0.3%
CB Richard Ellis Group, Inc. (Class A). 10,051 136,392 /(a)/
ROAD & RAIL -- 0.7%
Union Pacific Corp..................... 4,903 313,302
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 2.2%
Intel Corp............................. 29,482 601,433
Kla-Tencor Corp........................ 580 20,973
Microchip Technology Inc............... 2,455 71,342
Nvidia Corp............................ 1,785 33,344 /(a)/
Taiwan Semiconductor Manufacturing
Company Ltd. ADR...................... 9,819 112,329
Texas Instruments Inc.................. 3,481 90,715
930,136
SOFTWARE -- 4.3%
Intuit, Inc............................ 6,403 196,636 /(a)/
Microsoft Corp......................... 46,809 1,427,206 /(d)/
Oracle Corp............................ 6,248 153,326
1,777,168
SPECIALTY RETAIL -- 2.9%
Bed Bath & Beyond, Inc................. 12,099 467,384 /(a)/
Lowe's Companies, Inc.................. 28,591 668,743
Staples, Inc........................... 3,259 80,139
1,216,266
NUMBER
OF SHARES VALUE
TEXTILES APPAREL & LUXURY GOODS -- 0.1%
NIKE, Inc. (Class B)................... 357 $ 23,587
TOBACCO -- 0.9%
Altria Group, Inc...................... 2,231 43,795
Philip Morris International Inc........ 7,154 344,751
388,546
WIRELESS TELECOMMUNICATION SERVICES -- 2.1%
American Tower Corp. (Class A)......... 6,322 273,174 /(a)/
NII Holdings, Inc...................... 18,102 607,865 /(a)/
881,039
TOTAL COMMON STOCK
(COST $37,051,695).................... 40,266,490
----------------------------------------------------------------------
PREFERRED STOCK -- 0.4%
----------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES
Bank of America Corp.
(COST $160,320)....................... 10,688 159,465 /(a,e)/
----------------------------------------------------------------------
EXCHANGE TRADED FUNDS -- 1.7%
----------------------------------------------------------------------
Financial Select Sector SPDR Fund...... 9,821 141,324 /(g)/
Industrial Select Sector SPDR Fund..... 20,644 573,697 /(g)/
TOTAL EXCHANGE TRADED FUNDS
(COST $891,689)....................... 715,021
----------------------------------------------------------------------
OTHER INVESTMENTS -- 0.0%*
----------------------------------------------------------------------
GEI Investment Fund
(COST $11,846)........................ 9,003 /(f)/
TOTAL INVESTMENTS IN SECURITIES
(COST $38,115,550).................... 41,149,979
----------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 1.8%
----------------------------------------------------------------------
GE Money Market Fund Institutional
Class 0.01%
(COST $743,931)....................... 743,931 /(b,h)/
TOTAL INVESTMENTS
(COST $38,859,481).................... 41,893,910
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET -- (0.2)%......................... (93,693)
-----------
NET ASSETS -- 100.0%................... $41,800,217
===========
See Notes to Schedules of Investments on page 10 and Notes to Financial
Statements on page 15.
8
U.S. EQUITY FUND
Schedule of Investments December 31, 2009
- ---------------------------------------------------------------------
OTHER INFORMATION
-------------------------
The GEI U.S. Equity Fund had the following short futures contracts open at
December 31, 2009
NUMBER CURRENT
EXPIRATION OF NOTIONAL UNREALIZED
DESCRIPTION DATE CONTRACTS VALUE APPRECIATION
-----------------------------------------------------------
S&P 500 EMini
Index Futures March 2010 1 $(55,535) $462
See Notes to Schedules of Investments on page 10 and Notes to Financial
Statements on page 15.
9
Notes to Schedules of Investments December 31, 2009
- ---------------------------------------------------------------------
The views expressed in this document reflect our judgment as of the publication
date and are subject to change at any time without notice. The securities cited
may not represent current or future holdings and should not be considered as a
recommendation to purchase or sell a particular security. See the prospectus
for complete descriptions of investment objectives, policies, risks and
permissible investments.
(a)Non-income producing security.
(b)Coupon amount represents effective yield.
(c)State Street Corp. is the parent company of State Street Bank & Trust Co.,
the Fund's custodian and accounting agent.
(d)At December 31, 2009, all or a portion of this security was pledged to cover
collateral requirements for futures, options, forward foreign currency
contracts and/or TBA's.
(e)Variable or floating rate security. The stated rate represents the rate at
December 31, 2009.
(f)GE Asset Management Incorporated (GEAM) is the investment advisor of the
Fund and also serves as investment advisor of the GEI Investment Fund.
(g)Sponsored by SSgA Funds Management, Inc., an affiliate of State Street
Bank & Trust Co., the Fund's custodian and accounting agent.
(h)GEAM, the investment adviser of the Fund, also serves as investment adviser
of the GE Funds-GE Money Market Fund
* Less than 0.1%.
+ Percentages are based on net assets as of December 31, 2009.
Abbreviations:
ADR American Depository Receipt
SPDR Standard & Poors Depository Receipts
TBA To be Announced
10
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
U.S. EQUITY FUND
--------------------------------------------------------
CLASS 1
-------------------------------------------------------
12/31/09 12/31/08 12/31/07 12/31/06 12/31/05
-------- -------- -------- -------- -------- -
INCEPTION DATE -- -- -- -- 1/3/95
Net asset value, beginning of period....... $ 22.44 $ 36.41 $ 39.02 $ 34.06 $ 33.61
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)............. 0.30 0.37 0.45 0.53 0.39
Net realized and unrealized
gains/(losses) on investments........... 6.80 (13.52) 2.70 4.96 0.46
- --------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM
INVESTMENT OPERATIONS..................... 7.10 (13.15) 3.15 5.49 0.85
- --------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.................... 0.31 0.36 0.44 0.53 0.40
Net realized gains....................... 0.00 0.46 5.32 -- --
- --------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS........................ 0.31 0.82 5.76 0.53 0.40
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period............. $ 29.23 $ 22.44 $ 36.41 $ 39.02 $ 34.06
- --------------------------------------------------------------------------------------------------------
TOTAL RETURN/(A)/.......................... 31.63% (36.05)% 8.01% 16.12% 2.51%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands). $41,792 $37,917 $77,777 $101,885 $98,883
Ratios to average net assets:
Net investment income.................. 1.11% 1.03% 0.94% 1.43% 1.06%
Expenses............................... 0.86%/(b)/ 0.72%/(b)/ 0.66% 0.63% 0.63%
Portfolio turnover rate.................. 46% 56% 55% 45% 40%
----------------------------
CLASS 4
----------------------------
12/31/09 12/31/08
-------- --------
INCEPTION DATE -- 5/1/08
Net asset value, beginning of period....... $ 22.47 $ 35.32
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)............. 0.03 0.15**
Net realized and unrealized
gains/(losses) on investments........... 6.95 (12.26)
- ------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM
INVESTMENT OPERATIONS..................... 6.98 (12.11)
- ------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.................... 0.20 0.28
Net realized gains....................... 0.00 0.46
- ------------------------------------------------------------------------
TOTAL DISTRIBUTIONS........................ 0.20 0.74
- ------------------------------------------------------------------------
Net asset value, end of period............. $29.25 $22.47
- ------------------------------------------------------------------------
TOTAL RETURN/(A)/.......................... 31.05% (34.25)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands). $ 9 $ 7
Ratios to average net assets:
Net investment income.................. 0.68% 0.74%*
Expenses............................... 1.31%/(b)/ 1.17%/(b)/*
Portfolio turnover rate.................. 46% 56%
NOTES TO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(a)Total returns are historical and assume changes in share price, reinvestment
of dividends and capital gains distributions and do not include the effect
of insurance contract charges.
(b)Reflects GEAM's waiver of a portion of the Fund's management fee in an
amount equal to the management fee earned by GEAM with respect to the Fund's
investment in the GE Funds - GE Money Market Fund. Excluding waiver, the
expense ratios would be unchanged.
* Annualized for periods less than one year.
**Per share values have been calculated using the average share method.
See Notes to Financial Statements.
11
Statement of Assets U.S.
and Liabilities DECEMBER 31, 2009 EQUITY
FUND
- -------------------------------------------------------------------------------
ASSETS
Investments in securities, at market (cost $38,103,704)......... $41,140,976
Investments in affiliated securities, at market (cost $11,846).. 9,003
Short-term affiliated investments (at amortized cost)........... 743,931
Foreign cash (cost $33)......................................... 33
Income receivables.............................................. 47,180
Receivable for fund shares sold................................. 1,984
Variation margin receivable..................................... 570
- -------------------------------------------------------------------------------
TOTAL ASSETS.................................................. 41,943,677
- -------------------------------------------------------------------------------
LIABILITIES
Distribution payable to shareholders............................ 3
Payable for fund shares redeemed................................ 12,103
Payable to GEAM................................................. 19,505
Accrued other expenses.......................................... 111,849
- -------------------------------------------------------------------------------
TOTAL LIABILITIES............................................. 143,460
- -------------------------------------------------------------------------------
NET ASSETS........................................................ $41,800,217
- -------------------------------------------------------------------------------
NET ASSETS CONSIST OF :
Capital paid in................................................. 50,064,658
Undistributed (distribution in excess of)
net investment income......................................... 3,181
Accumulated net realized gain (loss)............................ (11,302,513)
Net unrealized appreciation/(depreciation) on:
Investments................................................... 3,034,429
Futures....................................................... 462
- -------------------------------------------------------------------------------
NET ASSETS........................................................ $41,800,217
- -------------------------------------------------------------------------------
CLASS 1:
NET ASSETS........................................................ 41,791,600
Shares outstanding ($0.01 par value; unlimited shares authorized). 1,429,678
Net asset value per share......................................... 29.23
CLASS 4:
NET ASSETS........................................................ 8,617
Shares outstanding ($0.01 par value; unlimited shares authorized). 295
Net asset value per share......................................... 29.25
See Notes to Financial Statements.
12
Statement of Operations U.S.
FOR THE YEAR ENDING DECEMBER 31, 2009 EQUITY
FUND
--------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend........................................... $641,331
Interest........................................... 112,547
Interest from affiliated investments............... 3,309
Less: Foreign taxes withheld....................... (2,628)
--------------------------------------------------------------------
TOTAL INCOME......................................... 754,559
--------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees................... 210,900
Distributors Fees (Notes 4)
Class 4.......................................... 33
Transfer agent..................................... 17,918
Directors' fees.................................... 1,066
Custody and accounting expenses.................... 62,791
Professional fees.................................. 23,778
Registration expenses.............................. 3,855
Other expenses..................................... 12,642
--------------------------------------------------------------------
TOTAL EXPENSES BEFORE WAIVER AND REIMBURSEMENT....... 332,983
--------------------------------------------------------------------
Less: Expenses reimbursed by the adviser........... (2,154)
--------------------------------------------------------------------
Net expenses....................................... 330,829
--------------------------------------------------------------------
NET INVESTMENT INCOME................................ 423,730
--------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments...................................... (6,326,726)
Futures.......................................... (31,688)
Foreign currency transactions.................... 151
INCREASE IN UNREALIZED APPRECIATION ON:
Investments...................................... 16,392,410
Futures.......................................... 15,882
Foreign currency transactions.................... 4
--------------------------------------------------------------------
Net realized and unrealized gain on investments.... 10,050,033
--------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS. $10,473,763
--------------------------------------------------------------------
See Notes to Financial Statements.
13
Statements of U.S.
Changes in Net Assets EQUITY
FUND
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2009 2008
- ---------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income................................................................ $ 423,730 $ 605,161
Net realized gain (loss) on investments, futures and foreign currency transactions.... (6,358,263) (4,098,376)
Net increase (decrease) in unrealized appreciation / (depreciation) on investments,
futures and foreign currency transactions........................................... 16,408,296 (20,808,739)
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations............................................... 10,473,763 (24,301,954)
- ---------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class 1............................................................................. (439,224) (594,165)
Class 4............................................................................. (58) (78)
Net realized gains
Class 1............................................................................. -- (757,321)
Class 4............................................................................. -- (132)
- ---------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS..................................................................... (439,282) (1,351,696)
- ---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions..................... 10,034,481 (25,653,650)
- ---------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares
Class 1............................................................................. 798,549 1,109,760
Class 4............................................................................. -- 10,000
Value of distributions reinvested
Class 1............................................................................. 439,224 1,351,472
Class 4............................................................................. 58 210
Cost of shares redeemed
Class 1............................................................................. (7,396,085) (16,670,624)
Class 4............................................................................. -- --
- ---------------------------------------------------------------------------------------------------------------------
Net (decrease) from share transactions................................................ (6,158,254) (14,199,182)
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS................................................. 3,876,227 (39,852,832)
NET ASSETS
Beginning of period..................................................................... 37,923,990 77,776,822
- ---------------------------------------------------------------------------------------------------------------------
End of period........................................................................... $41,800,217 $ 37,923,990
- ---------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF)
NET INVESTMENT INCOME, END OF PERIOD.................................................... $ 3,181 $ 18,582
- ---------------------------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES
CLASS 1
Shares sold............................................................................... 30,844 37,873
Issued for distributions reinvested....................................................... 14,889 61,208
Shares redeemed........................................................................... (305,851) (545,150)
- ---------------------------------------------------------------------------------------------------------------------
Net (decrease) in fund shares............................................................. (260,118) (446,069)
- ---------------------------------------------------------------------------------------------------------------------
CLASS 4
Shares sold............................................................................... -- 283
Issued for distributions reinvested....................................................... 2 10
Shares redeemed........................................................................... -- --
- ---------------------------------------------------------------------------------------------------------------------
Net increase in fund shares............................................................... 2 293
- ---------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
14
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
1. ORGANIZATION OF THE COMPANY
GE Investments Funds, Inc. (the "Company") was incorporated under the laws of
the Commonwealth of Virginia on May 14, 1984 and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Company is composed of fourteen investment
portfolios (collectively the "Funds"), although only the following eleven are
currently being offered: U.S. Equity Fund, (the "Fund") S&P 500 Index Fund,
Premier Growth Equity Fund, Core Value Equity Fund, Mid-Cap Equity Fund,
Small-Cap Equity Fund, International Equity Fund, Total Return Fund, Income
Fund, Money Market Fund and Real Estate Securities Fund.
Shares of the Funds of the Company are offered only to insurance company
separate accounts that fund certain variable life insurance contracts and
variable annuity contracts. These insurance companies may include insurance
companies affiliated with GE Asset Management Incorporated ("GEAM"), the
investment adviser and administrator of each of the Funds.
The Company offers two share classes (Class 1 and Class 4) of the Fund as
investment options for variable life insurance and variable annuity contracts.
Class 4 shares were first offered on May 1, 2008, and Fund shares outstanding
prior to May 1, 2008 were designated as Class 1 shares. Each share class has
different fees and expenses, and as a result, each share class will have
different share price and performance. Not all variable contracts offer both
share classes of the Fund.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results may differ from
those estimates.
ACCOUNTING CHANGES
The Financial Accounting Standards Board (FASB) issued FASB Accounting
Standards Codification (ASC) effective for financial statements issued for
interim and annual periods ending after September 15, 2009. The ASC is an
aggregation of previously issued authoritative U.S. generally accepted
accounting principles (GAAP) in one comprehensive set of guidance organized by
subject area. In accordance with the ASC, references to previously issued
accounting standards have been replaced by ASC references. Subsequent revisions
to GAAP will be incorporated into the ASC through Accounting Standards Updates
(ASU).
SUBSEQUENT EVENTS
Subsequent events after the balance sheet date through the date that the
financial statements were issued have been evaluated in the preparation of the
Financial Statement.
The following summarizes the significant accounting policies of the Fund:
SECURITY VALUATION AND TRANSACTIONS
The Fund's portfolio securities are valued generally on the basis of market
quotations. Equity securities generally are valued at the last reported sales
price on the primary market in which they are traded. Portfolio securities
listed on NASDAQ are valued using the NASDAQ Official Closing Price, which may
not necessarily represent the last sale price. If no sales occurred on the
exchange or NASDAQ that day, the portfolio security generally is valued using
the last reported bid price.
Debt securities (other than short-term securities described below) generally
are valued at an evaluated bid as reported by an independent pricing service.
Values obtained from pricing services are based on recent trading activity and
other relevant information which may include market interest rate curves,
referenced credit spreads and estimated prepayment rates where applicable. In
the absence of a reliable price from such a pricing service, debt securities
may be valued based on dealer supplied valuations or quotations. The Fund's
written or purchased options are valued at the last sales price, or if no sales
occurred that day, at the last reported bid price. Short-term investments of
sufficient credit quality with remaining maturities of sixty days or less at
the time of purchase are valued on the basis of amortized cost, which
approximates market value.
All assets and liabilities of the Fund that are initially expressed in foreign
currency values will be converted into U.S. dollars at the WM/Reuters exchange
rate computed at 11:00 a.m., Eastern time.
15
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
If prices are not readily available for a portfolio security, or if it is
believed that a price for a portfolio security does not represent its fair
value, the security may be valued using procedures approved by the Fund's Board
of Directors that are designed to establish its "fair" value.
Foreign securities may be valued with the assistance of an independent fair
value pricing service in circumstances where it is believed that they have been
or would be materially affected by events occurring after the close of the
portfolio security's primary market and before the close of regular trading on
the NYSE. This independent fair value pricing service uses a computerized
system to appraise affected securities and portfolios taking into consideration
various factors and the fair value of such securities may be something other
than the last available quotation or other market price.
GEAM may also separately monitor portfolio securities and, consistent with the
Fund's fair value procedures, apply a different value to a portfolio security
than would be applied had it been priced using market quotations or by an
independent fair value pricing service.
Determining the fair value of securities involves the application of both
subjective and objective considerations. Security values may differ depending
on the methodology used to determine their values, and may differ from the last
quoted sale or closing price. No assurance can be given that use of these fair
value procedures will always better represent the price at which the Fund could
sell the affected portfolio security.
Security transactions are accounted for as of the trade date. Realized gains
and losses on investments sold are recorded on the basis of identified cost for
both financial statement and federal tax purposes.
FAIR VALUE MEASUREMENTS
The Fund adopted ASC 820, FAIR VALUATION MEASUREMENTS AND DISCLOSURES effective
January 1, 2008. This guidance establishes a new framework for measuring fair
value and expands related disclosures. Broadly, the framework requires fair
value to be determined based on the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction
between market participants. It also establishes a three-level valuation
hierarchy based upon observable and non-observable inputs.
For financial assets and liabilities, fair value is the price the Fund would
receive to sell an asset or pay to transfer a liability in an orderly
transaction with a market participant at the measurement date. In the absence
of active markets for the identical assets or liabilities, such measurements
involve developing assumptions based on market observable data and, in the
absence of such data, internal information that is consistent with what market
participants would use in a hypothetical transaction that occurs at the
measurement date.
Observable inputs reflect market data obtained from independent sources, while
unobservable inputs reflect our market assumptions. Preference is given to
observable inputs. These two types of inputs create the following fair value
hierarchy:
Level 1--Quoted prices for identical investments in active markets.
Level 2--Quoted prices for similar investments in active markets; quoted
prices for identical or similar investments in markets that are not active;
and model-derived valuations whose inputs are observable or whose
significant value drivers are observable.
Level 3--Significant inputs to the valuation model are unobservable.
Policies and procedures are maintained to value investments using the best and
most relevant data available. In addition, GEAM performs periodic reviews of
the methodologies used by independent pricing services including price
validation of individual securities.
The following section describes the valuation methodologies the Fund uses to
measure different financial investments at fair value.
When available, the Fund uses quoted market prices to determine the fair value
of investment securities, and they are included in Level 1. Level 1 securities
primarily include publicly-traded equity securities.
When quoted market prices are unobservable, pricing information is obtained
from an independent pricing vendor. The pricing vendor uses various pricing
models for each asset class that are consistent with what other market
participants would use. The inputs and assumptions to the model of the pricing
vendor are derived from market observable sources including: benchmark yields,
reported trades, broker/dealer quotes, issuer spreads, benchmark securities,
bids, offers, and other market-related data. Since many fixed income securities
do not trade on a daily basis, the methodology of the pricing vendor uses
available information as applicable such as benchmark curves,
16
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
benchmarking of like securities, sector groupings, and matrix pricing. The
pricing vendor considers all available market observable inputs in determining
the evaluation for a security. Thus, certain securities may not be priced using
quoted prices, but rather determined from market observable information. These
investments are included in Level 2 and primarily comprise our portfolio of
corporate fixed income, and government, mortgage and asset-backed securities.
In infrequent circumstances, pricing vendors may provide the Fund with
valuations that are based on significant unobservable inputs, and in those
circumstances the investment securities are included in Level 3.
The Fund uses non-binding broker quotes as the primary basis for valuation when
there is limited, or no, relevant market activity for a specific investment or
for other investments that share similar characteristics. The Fund has not
adjusted the prices obtained. Investment securities priced using non-binding
broker quotes are included in Level 3. As is the case with the primary pricing
vendor, third-party brokers do not provide access to their proprietary
valuation models, inputs and assumptions. Accordingly, GEAM conducts internal
reviews of pricing for all such investment securities periodically to ensure
reasonableness of valuations used in our financial statements. These reviews
are designed to identify prices that appear stale, those that have changed
significantly from prior valuations, and other anomalies that may indicate that
a price may not be accurate. Based on the information available, GEAM believes
that the fair values provided by the brokers are representative of prices that
would be received to sell the assets at the measurement date (exit prices).
Other financial investments are derivative investments that are not reflected
in TOTAL INVESTMENTS, such as futures, forwards, swaps, and written options
contracts, which are valued based o the unrealized appreciation/depreciation of
the instrument.
The Fund uses closing prices for derivatives included in Level 1, which are
traded either on exchanges or liquid over-the counter markets. Derivative
assets and liabilities included in Level 2 primarily represent interest rate
swaps, cross-currency swaps and foreign currency and commodity forward and
option contracts. Derivative assets and liabilities included in Level 3
primarily represent interest rate products that contain embedded optionality or
prepayment features.
January 2010, FASS issued ASU 2010-06, IMPROVING DISCLOSURES ABOUT FAIR VALUE
MEASUREMENTS ASU 2010-06 will require reporting entities to make new
disclosures about the amounts and reasons for significant transfers in and out
of Level land Level 2 fair value measurements and inputs and valuation
techniques used to measure fair value for both recurring and nonrecurring fair
value measurements that fall in either Level 2 or Level 3, and information on
purchases, sales, issuances, and settlements in the roll forward of activity in
Level 3 fair value measures. The new disclosures are effective for interim and
annual reporting periods beginning after December 15,2009, except for the
disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements. Those disclosures are
effect for fiscal gears beginning after December 15, 2010, and for interim
periods within those fiscal years. GEAM does not believe the adoption of ASU
2010-06 will materially impact the financial statement amounts.
The following tables present the funds' investments measured at fair value on a
recurring basis at December 31, 2009:
Level 1 Level 2 Level 3 Total
---------------------------------------------------------------------
Investments in Securities+ $41,884,907 $9,003 $-- $41,893,910
Other Financial Instruments+ 462 -- -- 462
+ See Schedule of Investment for Industry Classification.
REPURCHASE AGREEMENTS The Fund may engage in repurchase agreement transactions
with respect to instruments that are consistent with the Fund's investment
objectives or policies. The Fund's custodian or a third party custodian takes
possession of the collateral pledged for investments in repurchase agreements
on behalf of the Fund. The Fund values the underlying collateral daily on a
mark-to-market basis to determine that the value, including accrued interest,
is at least equal to 102% of the repurchase price. In the event the seller
defaults and the value of the security declines, or if the seller enters an
insolvency proceeding, realization of the collateral by the Fund may be delayed
or limited.
17
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
SECURITY LENDING The Fund may loan securities to brokers, dealers, and
financial institutions determined by GEAM to be creditworthy, subject to
certain limitations. The Fund continues to receive the interest and dividends
on the loaned securities during the term of the loan. The loans of securities
are secured by collateral in the form of cash or other liquid assets, which are
segregated and maintained with the custodian in an amount at least equal to
102% of the current market value of the loaned securities. During the term of
the loan, the Fund will record any gain or loss in the market value of its
loaned securities and of securities in which cash collateral is invested. The
Fund will also earn interest, net of any rebate, from securities in which cash
collateral is invested. In the event the counterparty (borrower) does not meet
its contracted obligation to return the securities, the Fund may be exposed to
the risk of loss of reacquiring the loaned securities at prevailing market
prices using the proceeds of the sale of the collateral.
FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the prevailing rates of exchange
on a daily basis (on days the New York Stock Exchange is open). Purchases and
sales of securities, income receipts and expense payments denominated in
foreign currencies are translated into U.S. dollars at the prevailing exchange
rate on the respective dates of such transactions.
The Fund does not isolate the portion of the results of operations resulting
from changes in foreign exchange rates of foreign denominated securities from
the fluctuations arising from changes in the market prices of those securities
during the period. Such fluctuations are included in the net realized or
unrealized gain or loss from investments. Net realized gains or losses on
foreign currency transactions represent net gains or losses on sales and
maturities of foreign currency contracts, disposition of foreign currencies,
the difference between the amount of net investment income and withholding
taxes accrued and the U.S. dollar amount actually received or paid, and gains
or losses between the trade and settlement date on purchases and sales of
securities. Net unrealized foreign exchange gains and losses arising from
changes in the value of other assets and liabilities as a result of changes in
foreign exchange rates are included as increases or decreases in unrealized
appreciation/depreciation on foreign currency related transactions.
FUTURES CONTRACTS The Fund may invest in interest rate, financial or stock or
bond index futures contracts subject to certain limitations. The Fund may
invest in futures contracts to manage its exposure to the stock and bond
markets and fluctuations in currency values. Buying futures tends to increase
the Fund's exposure to the underlying instrument while selling futures tends to
decrease the Fund's exposure to the underlying instrument, or hedge other Fund
investments. The Fund will not enter into a transaction involving futures for
speculative purposes. The Fund's risks in using these contracts include changes
in the value of the underlying instruments, non-performance of the
counterparties under the contracts' terms and changes in the liquidity of the
secondary market for the contracts. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange on
which they principally trade.
Upon entering into a futures contract, the Fund is required to pledge to the
broker an amount of cash and/or other assets equal to a certain percentage of
the contract amount, known as initial margin deposit. Subsequent payments,
known as variation margin, are made or received by the Fund each day, depending
on the daily fluctuation in the fair value of the underlying security. The Fund
records an unrealized gain or loss equal to the daily variation margin. Should
market conditions move unexpectedly, the Fund may not achieve the anticipated
benefits of the futures contracts and may incur a loss. The Fund recognizes a
realized gain or loss on the expiration or closing of a futures contract.
OPTIONS The Fund may purchase and write options, subject to certain
limitations. The Fund may invest in options contracts to manage its exposure to
the stock and bond markets and fluctuations in foreign currency values. Writing
puts and buying calls tend to increase the Fund's exposure to the underlying
instrument while buying puts and writing calls tend to decrease the Fund's
exposure to the underlying instrument, or hedge other Fund investments. The
Fund will not enter into a transaction involving options for speculative
purposes. The Fund's risks in using these contracts include changes in the
value of the underlying instruments, non-performance of the counterparties
under the contracts' terms and changes in the liquidity of the secondary market
for the contracts. Options are valued at the last sale price, or if no sales
occurred on that day, at the last quoted bid price.
When the Fund writes an option, the amount of the premium received is recorded
as a liability and is subsequently adjusted to the current fair value of the
option written. Premiums received from writing options that
18
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
expire unexercised are treated by the Fund on the expiration date as realized
gains from investments. The difference between the premium and the amount paid
on effecting a closing purchase transaction, including brokerage commissions,
is also treated as a realized gain, or if the premium is less than the amount
paid for the closing purchase, as a realized loss. When an option is exercised,
the proceeds from the sale of the underlying security or the cost basis of the
securities purchased is adjusted by the original premium received or paid.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for
federal income tax purposes.
The Fund is subject to ASC 740, INCOME TAXES. ASC 740 provides guidance for
financial accounting and reporting for the effects of income taxes that result
from an entity's activities during the year. ASC 740 also provides guidance
regarding how certain uncertain tax positions should be recognized, measured,
presented and disclosed in the financial statements. ASC 740 requires
evaluation of tax positions taken or expected to be taken in the course of
preparing the Funds' tax returns to determine whether the tax positions are
"more likely than not" of being sustained by the applicable tax authority.
There are no adjustments to the Funds' net assets required under ASC 740. The
Funds' 2006, 2007, 2008 and 2009 fiscal years tax returns are still open to
examination by the Federal and applicable state tax authorities."
At December 31, 2009, information on the tax cost of investments is as follows:
Net Tax
Appreciation/ Post
Cost of Net Tax (Depreciation) Undistributed Undistributed October
Investments Gross Tax Gross Tax Appreciation/ on Derivatives, Income/ Long-Term Losses
for Tax Unrealized Unrealized (Depreciation) Currency and (Accumulated Gains (Accumulated (see Detail
Purposes Appreciation Depreciation on Investments other Net Assets Ordinary Loss) Capital Loss) Below)
- ------------------------------------------------------------------------------------------------------------------------------
$41,341,363 $4,655,851 $(4,103,304) $552,547 $-- $3,224 $(8,731,501) $(88,711)
As of December 31, 2009, the Fund has capital loss carryovers as indicated
below.
Amount Expires
---------------------------------------------------
$805,607 12/31/2016
7,925,894 12/31/2017
Capital loss carryovers are available to offset future realized capital gains
to the extent provided in the Internal Revenue Code and regulations thereunder.
To the extent that these carryover losses are used to offset future capital
gains, it is probable that the gains so offset will not be distributed to
shareholders because they would be taxable as ordinary income.
During the year ended December 31, 2009, there were no capital loss carryover
expirations.
Any net capital and currency losses incurred after October 31, within the
Fund's tax year, are deemed to arise on the first day of the Fund's next tax
year if the Fund so elects to defer such losses.
The Fund elected to defer losses incurred after October 31, 2009 as follows:
Capital Currency
---------------------------------------------------
88,668 43
19
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
The tax composition of distributions paid during the years ended December 31,
2009 and December 31, 2008 were as follows:
Ordinary Long-Term
Income Capital Gains Total
---------------------------------------
2009 $439,282 $ -- $ 439,282
2008 943,520 408,176 1,351,696
DISTRIBUTIONS TO SHAREHOLDERS The Fund declares and pays dividends from net
investment income annually. The Fund declares and pays net realized capital
gains in excess of capital loss carryforwards distributions annually. The
character of income and gains to be distributed is determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences include (but are not limited to) futures and
losses deferred due to wash sale transactions. Reclassifications due to
permanent book/tax differences are made to the Fund's capital accounts to
reflect income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. These reclassifications have no
impact on net investment income, realized gains or losses, or the net asset
value of the Fund. The calculation of net investment income per share in the
Financial Highlights table excludes these adjustments.
The reclassifications for the year ended December 31, 2009 were as follows:
Undistributed
(Distribution in Excess of) Accumulated
Net Investment Income Net Realized (Loss)
-----------------------------------------------------
$151 $(151)
INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on
the ex-dividend date, net of applicable withholding taxes, except for certain
foreign corporate actions, which are recorded as soon after ex-dividend date as
such information becomes available. Interest income is recorded on the accrual
basis. All discounts and premiums on bonds are accreted and amortized,
respectively, to call or maturity date, whichever is shorter, using the
effective yield method.
EXPENSES Fund specific expenses are allocated to the Fund that incurs such
expense and pro rata across share classes. Expenses, other than those incurred
by a specific Fund, are allocated pro rata among Funds and share classes. Such
expenses may include custodial fees, legal and accounting fees, printing costs
and registration fees. All expenses of the Fund are paid by GEAM and reimbursed
by the Fund. Certain class specific expenses (such as transfer agency fees or
distribution fees) are allocated to the class that incurs such expense.
DERIVATIVE INSTRUMENTS The Fund is subject to equity price risk, and foreign
currency exchange rate risk in the normal course of pursuing their investment
objectives. The Fund entered into derivative transactions for the purpose of
hedging against the effects of changes in the value of portfolio securities due
to anticipated changes in market conditions and to gain market exposure for
residual and accumulating cash positions. A futures contract represents a
commitment for the future purchase or sale of an asset at a specified price on
a specified date. Upon entering into such contracts, the Fund is required to
deposit with the broker, either in cash or securities, an initial margin in an
amount equal to a certain percentage of the contract amount. Subsequent
payments (variation margin) are made or received by the Fund each day,
depending on the daily fluctuations in the value of the contract, and are
recorded for financial statement purposes as unrealized gains or losses by the
Fund. Upon entering into such contracts, the Fund bears the risk of interest or
exchange rates or securities prices moving unexpectedly, in which case, the
Fund may not achieve the anticipated benefits of the futures contracts and may
realize a loss. With futures contracts, there is minimal counterparty credit
risk to the Fund since futures contracts are exchange traded and the exchange's
clearinghouse, as counterparty to all traded futures, guarantees the futures
against default.
20
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
Shown below are the derivative contracts entered into by the Fund, summarized
by primary risk exposure.
- -------------------- Asset Derivatives December 31, 2009 Liability Derivatives December 31, 2009
Derivatives not ----------------------------------------------------------------------------------------------
accounted for as Location in Notional Location in Notional
hedging instruments the Statements Value/No. of the Statements Value/No. of
under FASB of Assets Contracts Fair of Assets Contracts Fair
ASC 815 and Liabilities Long/(Short) Value and Liabilities Long/(Short) Value
- - ---------------------------------------------------------------------------------------------
Equity Contracts Receivables, Net Assets -
Unrealized Appreciation/
(Depreciation) on futures (55,535)/1 462* -- -- --
*INCLUDES CUMULATIVE APPRECIATION/DEPRECIATION OF FUTURES CONTRACTS AS REPORTED
IN THE SCHEDULE OF INVESTMENTS AND EQUITY SECTION OF THE STATEMENT OF ASSETS
AND LIABILITIES. ONLY THE CURRENT DAY'S VARIATION MARGIN IS REPORTED WITHIN
THE RECEIVABLES AND/OR PAYABLES STATEMENT OF ASSETS AND LIABILITIES.
Shown below are the effects of derivative instruments on the Fund's Statements
of Operations, summarized by primary risk exposure.
Total Number of Change in Unrealized
Derivatives not accounted Location in the Futures/Options Realized Gain or Appreciation/(Depreciation)
for as hedging instruments Statements of Contracts (Loss) on Derivatives on Derivatives
under FASB ASC 815 Operations Purchased/(Sold) Recognized in Income Recognized in Income
- --------------------------------------------------------------------------------------------------------------------------
Equity Contracts Net realized gain/(loss) on 81/(80) (31,688) 15,882
futures, Increase/
(decrease)
in unrealized appreciation/
(depreciation) on futures
- --------------------------------------------------------------------------------------------------------------------------
3. LINE OF CREDIT
The Company shares a revolving credit facility of up to $150 million with a
number of its affiliates. The credit facility is with its custodian bank, State
Street Bank and Trust Company. The revolving credit facility requires the
payment of a commitment fee equal to 0.15% per annum on the daily unused
portion of the credit facility, payable quarterly. The portion borne by the
Funds generally is borne proportionally based upon net assets. In addition, the
Company has a $100 million uncommitted, unsecured line of credit with State
Street. Generally, borrowings under the credit facilities would accrue interest
at the Federal Funds Rate plus 50 basis points and would be borne by the
borrowing Fund. The maximum amount allowed to be borrowed by any one Fund is
the lesser of (i) its prospectus limitation or (ii) 20% of its net assets. The
credit facilities were not utilized by the Fund during the fiscal year ended
December 31, 2009.
4. AMOUNTS PAID TO AFFILIATES
GEAM, a registered investment adviser, was retained by the Company's Board of
Directors effective November 17, 1997 to act as investment adviser and
administrator of the Fund. GEAM's compensation for investment advisory and
administrative services is paid monthly based on the average daily net assets
of the Fund at an annualized rate of 0.55%.
GEAM waives a portion of the Fund's management fee in the amount equal to the
management fee earned by GEAM with respect to the Fund's investment in the GE
Funds--GE Money Market Fund.
DISTRIBUTION AND SERVICE (12B-1) FEES The Company has adopted a Distribution
and Service (12b-1) Plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act
with respect to Class 4 shares of the Fund. Under the Plan, the Fund may
compensate GE Investment Distributors, Inc. ("GEID"), a wholly-owned subsidiary
of GEAM and the Fund's principal distributor, for certain sales services
provided by GEID or other broker dealers and investor services provided by GEID
or other service providers relating to the Fund's Class 4 shares, including
services to owners or prospective owners of variable contracts issued by
insurance companies that offer such share class as an investment option. The
amount of compensation paid under the Plan by the Fund's Class 4 shares may not
exceed 0.45% of the average daily net assets of the Fund attributable to such
share class. The Plan continues in effect from year to year for so long as such
continuance is approved annually by the Board of
21
Notes to Financial Statements December 31, 2009
- ---------------------------------------------------------------------
Directors, including by those directors who are not interested persons of the
Company and who have no direct or indirect financial interest in the operation
of the Plan or in any agreement related to it.
GENPACT performs certain accounting and certain administration services not
provided by GEAM. For the period ending December 31, 2009, $634 was charged to
the Fund.
DIRECTORS' COMPENSATION The Fund pays no compensation to its directors who are
officers or employees of GEAM or its affiliates. Directors who are not such
officers or employees also serve in a similar capacity for other funds advised
by GEAM. Compensation paid to unaffiliated directors are reflected on the
Statement of Operations. These fees are allocated pro rata across all of the
mutual fund platforms and share classes served by the directors, including the
Fund, and are based upon the relative net assets of each Fund within such
platforms. (For additional information about directors compensation please
refer to the Statement of Additional Information.)
5. INVESTMENT TRANSACTIONS
PURCHASES AND SALES OF SECURITIES The cost of purchases and the proceeds from
sales of investments, other than short-term securities and options, for the
period ended December 31, 2009 were as follows:
U.S. Government Securities
-----------------------------------------------------
Purchases Sales
-----------------------------------------------------
$-- $--
Other Securities
-----------------------------------------------------
Purchases Sales
-----------------------------------------------------
$17,289,370 $24,051,939
SECURITY LENDING At December 31, 2009 and for the year then ended, the Fund did
not participate in securities lending.
22
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the U.S. Equity Fund, a series of GE
Investments Funds, Inc., as of December 31, 2009, and the related statement of
operations for the year then ended, statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years or periods in the five-year period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of December 31, 2009 by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
U.S. Equity Fund as of December 31, 2009, the results of its operations,
changes in its net assets and financial highlights for each of the years or
periods described above, in conformity with U.S. generally accepted accounting
principles.
/s/ KPMG LLP
Boston, Massachusetts
February 25, 2010
23
Advisory and Administrative Agreement Renewal (unaudited)
- ---------------------------------------------------------------
The Board of Directors of the GE Investments Funds, Inc. (the "Board"),
including the independent Board members, considered and all those that were
present unanimously approved the continuance of the Fund's Investment Advisory
and Administration Agreement with GE Asset Management Incorporated ("GEAM") at
meetings held on December 4 and December 11, 2009.
In considering whether to approve the Fund's investment advisory agreement, the
Board members considered and discussed a substantial amount of information and
analysis provided, at the Board's request, by GEAM. The Board members also
considered detailed information regarding performance and expenses of other
investment companies, including those with similar investment objectives and
sizes, which was prepared by independent third party providers, Lipper
Analytical Services Inc. ("Lipper") and Morningstar, Inc. ("Morningstar"). The
Board members reviewed the fees charged by GEAM for other mutual funds and
investment products other than mutual funds that employ the same investment
strategy as the Fund. The Board had the opportunity to ask questions and
request additional information in connection with its considerations.
Before approving the Fund's advisory agreement, the Board members reviewed the
information provided with management of GEAM and with independent legal
counsel. The Board members also reviewed a memorandum prepared by independent
legal counsel discussing the legal standards for the consideration of the
proposed continuance. The independent Board members discussed the proposed
continuance in detail during a private session with their independent legal
counsel at which no representatives of GEAM were present. The independent Board
members and their independent legal counsel requested, and received and
considered, additional information from GEAM following these sessions.
In advance of the meetings, and in response to their request, the Board members
received from GEAM written responses to their inquiries, which included
substantial exhibits and other materials related to GEAM's business and the
services it provides to the Fund. The Board members took into account their
multi-year experience as Board members and particularly their consideration of
these types of agreements in recent years. The information was presented in a
manner to facilitate comparison to prior periods and to reflect certain
enhancements. To focus their review, the Board members asked GEAM management,
in its oral presentation, to highlight material differences from the
information presented in recent years.
During the meetings, the Board members had an opportunity to discuss this
information with GEAM managers, including senior executives, representatives
from the legal, compliance and finance departments, and investment personnel.
The Board members posed questions to these representatives and engaged in
substantive discussions with them concerning GEAM's investment process.
In reaching their determination relating to continuance of the Fund's
investment advisory agreement, the Board members considered all factors that
they deemed relevant, including the factors discussed below. In their
deliberations, the Board members did not identify any particular information
that was all-important or controlling, and each Board member may have
attributed different weights to the various factors. In particular, the Board
members focused on the following:
THE NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED.
The Board members reviewed the services provided by GEAM, taking into account
their extensive past experiences with GEAM. They focused on the favorable
attributes of GEAM, including (i) an investment philosophy oriented toward
long-term performance; (ii) effective processes used for selecting investments
and brokers; (iii) effective processes used for providing Fund administration,
including controllership and compliance functions and oversight of the
performance of other companies that provide services to the Fund; (iv) highly
skilled professionals including analysts, research professionals, traders and
portfolio managers with a depth of experience involving the types of Funds they
oversee; (v) access to significant technological resources from which the Fund
may benefit; and (vi) a favorable history and reputation. The Board members
discussed with senior officers of GEAM the personnel changes made, and proposed
to be made, by GEAM. The Board members noted that the Fund represents only a
small portion of the assets managed by GEAM, but benefits from a full array of
services and resources provided by GEAM.
In light of these discussions, the Board, including the independent Board
members, concluded that GEAM's services continue to be satisfactory.
INVESTMENT PERFORMANCE OF THE FUND.
The Board members considered the investment performance of the Fund for various
periods. The Board
24
Advisory and Administrative Agreement Renewal (unaudited)
- ---------------------------------------------------------------
members reviewed detailed comparisons of the performance of the Fund with the
relevant securities indices and peer groupings of mutual funds prepared by
Lipper and Morningstar with respect to various periods. The Board members also
engaged in detailed discussions with GEAM management about its investment
process and performance results. These discussions focused on the Fund's
investment objective, the number and experience of portfolio management and
supporting research personnel, the investment style and approach employed and
the likely market cycles for the investment style.
The Board, including the independent Board members, concluded that the Fund's
performance was acceptable overall taking into consideration the factors
discussed above.
COST OF THE SERVICES PROVIDED AND PROFITS REALIZED FROM THE RELATIONSHIP WITH
THE FUND.
The Board members considered the fees paid to GEAM by the Fund and the cost of
the services provided to the Fund by GEAM. The Board members reviewed the
information they had requested from GEAM concerning its profitability. The
Board members considered the profit margin information for GEAM's investment
company business as a whole, as well as GEAM's profitability data for the Fund.
The Board members reviewed GEAM's assumptions and the methods of cost
allocation used by GEAM in preparing Fund-specific profitability data. The
Board members also discussed with GEAM the basis for its belief that the
methods of allocation used were reasonable for each area of its business.
Information was presented regarding the financial condition of GEAM for various
past periods. The Board members noted and discussed the additional services
provided by GEAM to the Fund compared to other investment products managed by
GEAM, and were provided a study conducted by the Investment Company Institute
that discusses and compares advisory fees and services for mutual funds and
institutional separate accounts. The Board members determined that GEAM should
be entitled to earn a reasonable level of profits for the services it provides
to the Fund. The Board members also recognized that GEAM had made significant
investments in its business and had not fully recovered the sums invested. The
Board also considered that, in the face of overall declining assets and
revenues over the course of the past year, GEAM continues to make a substantial
investment in fulfilling its obligations to the Fund and supporting its
Fund-related activities.
Based on their review, the Board, including the independent Board members,
concluded that they were satisfied that the level of profitability achieved by
GEAM from its relationship with the Fund was not unreasonable or excessive.
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS AND
WHETHER FEE LEVELS WOULD REFLECT SUCH ECONOMIES OF SCALE.
Although the Board noted that the Fund did not experience significant growth in
assets over the past year, the Board members considered the extent to which
economies of scale would be realized as the Fund grows, and whether fee levels
reflect these economies of scale for the benefit of Fund investors.
The Board members considered the substantial infrastructure investments that
GEAM has made with respect to its operations and its commitment to continue
investing resources to enhance services to Fund shareholders. The Board members
recognized the benefits to the Fund of GEAM's past investment in its operations
through the expenditure of sums to support its substantial infrastructure, and
that, with respect to all GEAM managed mutual funds, GEAM has not yet fully
recouped that investment. The Board members also recognized the benefits to the
Fund of being able to leverage a favorable cost structure achieved with respect
to the Fund's other operating expenses as a result of GEAM's large overall base
of assets under management and its vendor management practices.
COMPARISON OF SERVICES TO BE RENDERED AND FEES TO BE PAID.
The Board members discussed the services provided to the Fund by GEAM, and the
fees charged for those services. The Board members reviewed information
concerning the fee and expense ratios for the Fund, and comparative information
with respect to similar products. They discussed that the Fund's figures were
within the applicable peer group range. In light of the foregoing, the Board,
including the independent Board members, determined that the advisory fees were
reasonable in relation to the services provided to the Fund.
25
Advisory and Administrative Agreement Renewal (unaudited)
- ---------------------------------------------------------------
FALL-OUT BENEFITS.
The Board members considered other actual and potential financial benefits that
GEAM may derive from its relationship with the Fund, including, to the extent
applicable, soft dollar commission benefits generated through Fund portfolio
transactions. The Board members noted, however, that the Fund benefits from the
vast array of resources available through GEAM, and that the Fund represents
only a small portion of the assets managed by GEAM.
CONCLUSION.
No single factor was determinative to the Board's decision. Based on their
discussion and such other matters as were deemed relevant, the Board, including
the independent Board members, concluded that renewal of the advisory agreement
was in the best interests of the Fund and its shareholders.
26
Additional Information (unaudited)
- ---------------------------------------------------------------
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS:
The business and affairs of the Company are managed under the direction of the
Company's Board of Directors. Information pertaining to the Directors and
officers of the Company is set forth below.
INTERESTED DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
MICHAEL J. COSGROVE
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
POSITION(S) HELD WITH FUND Chairman of the Board and President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS President and Chief Executive
Officer - Mutual Funds and Intermediary Business since March 2007; Executive
Vice President of GEAM from February 1997 to March 2007; Director of GEAM since
1988; Vice President, GE Capital Corporation, an indirect wholly-owned
subsidiary of GE, since December 1999; Executive Vice President - Sales and
Marketing of GEAM, a wholly-owned subsidiary of GE that is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, from
March 1993 to March 2007.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 51
OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE
Funds since 1993, and GE Institutional Funds since its inception; Trustee of
General Electric Savings & Security Trust, General Electric S&S Income Fund,
General Electric S&S Program Mutual Fund ("GE Savings & Security Funds"), Elfun
Funds, General Electric Insurance Plan Trust, General Relief Loan Fund, and
General Electric Pension Trust since 1988; Trustee of Fordham University since
2002; Trustee of GE Volunteers since 1993; Director, GE Asset Management
(Ireland) since February 1999; Director, GE Asset Management Funds Plc., GE
Asset Canada Company, and GE Asset Management Limited since 1998.
- --------------------------------------------------------------------------------
MATTHEW J. SIMPSON
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 48
POSITION(S) HELD WITH FUND Director and Executive Vice President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 2 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President, General
Counsel and Secretary of GEAM since July 2007; Senior Vice President and
General Counsel - Marketing and Client Services (formerly Asset Management
Services), at GEAM and Senior Vice President and General Counsel of GEAMS from
February 1997 to June 2007; Vice President and Associate General Counsel of
GEAM from October 1992 to February 1997; Secretary of Fund from 1997 to June
2007; Vice President of Fund from September 2003 to June 2007; Vice President
of GE Institutional Funds and GE LifeStyle Funds from September 2003 to June
2007; Secretary of GE Institutional Funds from 1997 to June 2007; Vice
President of Elfun Funds and GE Savings & Security Funds from October 2003 to
June 2007; Assistant Secretary of Elfun Funds and GE Savings & Security Funds
from 1998 to June 2007.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 51
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds, GE Institutional
Funds, Elfun Funds and GE Savings & Security Funds since July 2007.
27
Additional Information (unaudited)
- ---------------------------------------------------------------
- --------------------------------------------------------------------------------
SCOTT H. RHODES
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 49
POSITION(S) HELD WITH FUND Treasurer
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 3 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS GEAM Mutual Funds Operations
Manager since September 2005; Treasurer of GE Institutional Funds, GE LifeStyle
Funds and GE Investments Funds since November 2005 and Elfun Funds and GE
Savings & Security Funds since September 2005; from August 2004 to September
2005 Vice President, U.S. Trust Company, N.A. and Assistant Treasurer of
Excelsior Funds, Inc., Excelsior Funds Trust, and Excelsior Tax Exempt Funds,
Inc.; from January 2004 to August 2004, Vice President BlackRock Financial
Management, Inc.; from December 1996 to November 2003, Controller - Mutual
Funds, American Skandia Investment Services, Inc. and Assistant Treasurer of
American Skandia Trust and American Skandia Advisor Funds, Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
JEANNE M. LAPORTA
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 44
POSITION(S) HELD WITH FUND Vice President and Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 5 years (Vice President); 3 years (Secretary)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Senior Vice President and Deputy
General Counsel at GE Asset Management since October 2007; Vice President and
Associate General Counsel - Marketing and Client Services (formerly Asset
Management Services) at GEAM from May 1997 to October 2007; Vice President and
Assistant Secretary of GE Funds and GE Institutional Funds from September 2003
to July 2007; Vice President and Secretary of GE Funds and GE Institutional
Funds since July 2007; Vice President and Assistant Secretary of Elfun Funds
and GE Savings & Security Funds since October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
28
Additional Information (unaudited)
- ---------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 63
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS General Partner, NGN Capital LLC
since 2006; Managing Director, Vice President of Walden Capital Management
since 1996.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, GE
Institutional Funds since its inception; Trustee of Fordham University from
1989 to 1995 and 2001 to 2007 and Trustee Emeritus since 2007; Trustee of Neuro
Science Research Institute since 1986; Trustee of Gregorian University
Foundation from 1992 to 2007; Director of Artes Medical from 2006 to 2008.
- --------------------------------------------------------------------------------
WILLIAM J. LUCAS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 61
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Treasurer of
Fairfield University since 1983.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds since its inception.
- --------------------------------------------------------------------------------
ROBERT P. QUINN
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 74
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 13 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon
Brothers Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 43
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds since its inception; Trustee, St. Francis Hospital Corp.
- --------------------------------------------------------------------------------
The Statement of Additional Information for the Fund includes additional
information about the Directors and Officers and is available, without charge,
upon request by calling 1-800-493-3042.
29
Investment Team
- ----------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
GE Asset Management Incorporated
BOARD OF DIRECTORS
Michael J. Cosgrove, CHAIRMAN
John R. Costantino
William J. Lucas
Robert P. Quinn
Matthew J. Simpson
SECRETARY
Jeanne M. LaPorta
ASSISTANT SECRETARIES
Joseph A. Carucci
Joon Won Choe
Kimberley Costello
Michelle Matzelle
TREASURER
Scott H. Rhodes
ASSISTANT TREASURERS
Scott R. Fuchs
Christopher M. Isaacs
DISTRIBUTOR
GE Investment Distributors, Inc.
Member FINRA and SIPC
COUNSEL
Sutherland, Asbill & Brennan, LLP
CUSTODIAN
State Street Bank & Trust Company
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
OFFICERS OF THE INVESTMENT ADVISER
James W. Ireland, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Cheryl H. Beacock, SENIOR VICE PRESIDENT, HUMAN RESOURCES
Daniel O. Colao, EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER
Michael J. Cosgrove, PRESIDENT AND CHIEF EXECUTIVE
OFFICER - MUTUAL FUNDS & INTERMEDIARY BUSINESS
Paul M. Colonna, PRESIDENT AND CHIEF INVESTMENT OFFICER - FIXED INCOME
INVESTMENTS
Amiel Goldberg, SENIOR VICE PRESIDENT, CHIEF RISK OFFICER
Ralph R. Layman, PRESIDENT AND CHIEF INVESTMENT OFFICER - PUBLIC EQUITY
INVESTMENTS (SINCE JULY 2009)
Maureen B. Mitchell, PRESIDENT - INSTITUTIONAL SALES AND MARKETING (SINCE JULY
2009)
Matthew J. Simpson, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
Judith A. Studer, CHIEF MARKET STRATEGIST (SINCE JULY 2009)
Don W. Torey, PRESIDENT - ALTERNATIVE INVESTMENTS
John J. Walker, EXECUTIVE VICE PRESIDENT, CHIEF OPERATING OFFICER
David Wiederecht, PRESIDENT AND CHIEF INVESTMENT OFFICER - INVESTMENT STRATEGIES
30
INVESTMENT ADVISER
GE ASSET MANAGEMENT INCORPORATED
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
DISTRIBUTOR
GE INVESTMENT DISTRIBUTORS, INC.
MEMBER FINRA AND SIPC
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission for the first and third quarters of each
fiscal year on Form N-Q. The Fund's Forms N-Q, as well as a description of
the policies and procedures that the Fund uses to determine how to vote
proxies (if any) relating to portfolio securities is available without
charge (i) upon request, by calling 1-800-493-3042; (ii) on the Fund's
website at http://www.geam.com; and (iii) on the Commission's website at
http://www.sec.gov. The Fund's Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC - information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to
portfolio securities during the most recently disclosed 12-month period
ended June 30 is available without charge (i) through the Fund's website at
http://www.geam.com; and (ii) on the Commission's website at
http://www.sec.gov.
[LOGO] GE
ITEM 2. CODE OF ETHICS.
Please refer to the Code of Ethics included in the following link:
www.ge.com/files/usa/en/commitment/social/integrity/downloads/english.pdf
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees of the registrant has determined that both John R.
Costantino and William J. Lucas are designated as audit committee financial
experts for the Funds; and further that it is the finding of the Boards that
Messrs. Costantino and Lucas, the audit committee financial experts, qualify
as being 'independent' pursuant to paragraph (a)(2) of Item 3 to Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES. The aggregate fees billed for each of the last two fiscal
years (the "Reporting Periods") for professional services rendered by the
Registrant's principal accountant (the "Auditor") for the audit of the
Registrant's annual financial statements, or services that are normally
provide by the Auditor in connection with the statutory and regulatory
filings or engagements for the Reporting Periods were $209,700 in 2008 and
$210,900 in 2009.
(b) AUDIT RELATED FEES. There were no fees billed by the Auditor for
assurance and related services that were related to the performance of the
audit for the Registrant during the Reporting Periods.
(c) TAX FEES. There were no fees billed for professional services
rendered by the Auditor for tax compliance, tax advice or tax planning for
the Registrant during the Reporting Periods.
(d) ALL OTHER FEES. There were no fees billed for products and services
provided by the Auditor, other than the services reported in paragraphs
(a) through (c) of this Item for the Registrant during the Reporting Periods.
(e) (1) AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES.
The Audit Committee of the GE Investments Funds (the "Funds") Board of
Trustees is responsible, among other things, for the appointment,
compensation and oversight of the work of the Fund's independent
accountants/auditors (the "Auditor"). As part of this responsibility and
to ensure that the Auditor's independence is not impaired, the Audit Committee
(1) pre-approves the audit and non-audit services provided to the Funds by
the Auditor, and (2) all non-audit services provided to the Funds' investment
adviser and covered affiliates (as defined in the Audit Committee Charter) that
provide ongoing services to the Funds if the services directly impact the
Funds' operations or financial reporting, in accordance with the Audit
Committee Charter. Following are excerpts from the Audit Committee Charter
that sets forth the pre-approval policies and procedures:
1. Selection and Pre-Approval of Auditor and Approval of Fees.
(i) The Audit Committee shall pre-approve the selection of the Auditor and
shall recommend for ratification the selection, retention or termination of the
Auditor by the full Board, including the independent Trustees/Directors, and,
in connection therewith, shall evaluate the independence of the Auditor,
including: (i) an evaluation of whether the Auditor provides any consulting
services to the Fund's investment adviser and the extent to which the Auditor
provides non-audit services to the Fund's investment adviser and certain other
affiliated service providers as defined in Section 2(f) below, which services
are not subject to the pre-approval requirements set forth in Section 4 below;
(ii) an evaluation of the extent to which the Auditor has any relationships
with the Fund or its affiliated persons that are brought to the attention of
the Audit Committee by the Auditor in accordance with applicable standards of
the Independence Standards Board ("ISB"), because, in the Auditor's
professional judgment, such relationships may reasonably be thought to bear
on the Auditor's independence with respect to the Fund; and (iii) monitoring
the Auditor's compliance with respect to the rotation requirements for the
lead and coordinating partners having primary responsibility for the Fund's
audits and any partner responsible for the reviewing the Fund's audits.
The Audit Committee shall review the Auditor's specific representations as
to its independence.
(b) The Audit Committee shall pre-approve and review the fees charged by
the Auditor for audit and non-audit services to be provided to the Fund and
certain affiliated service providers (as defined in Section 2(f) below) in
accordance with the pre-approval requirements set forth in Section 4 below.
The Fund shall provide for appropriate funding, as determined by the Audit
Committee, to compensate the Auditor for any authorized service provided to
the Fund.
2. Meetings with the Auditor. The Audit Committee shall meet with the
Auditor, including private meetings, prior to the commencement of substantial
work on the audit and following the conclusion of the audit, as well as such
other times as the Audit Committee shall deem necessary or appropriate. The
Auditor shall report directly to the Audit Committee. The Auditor shall
report at least annually, concerning the following and other pertinent matters:
(a) to review the arrangements for and scope of the annual audit and any
special audits;
(b) to provide the Auditor the opportunity to report to the Audit
Committee, on a timely basis, all critical accounting policies and practices
to be used;
(c) to discuss any matters of concern relating to the Fund's financial
statements, including: (i) any adjustments to such statements recommended by
the Auditor, or other results of said audit(s), and (ii) any alternative
treatments of financial information within GAAP that have been discussed with
Fund management, the ramifications of the use of such alternative disclosures
and treatments, and the treatment preferred by the Auditor;
(d) to provide the Auditor the opportunity to report to the Audit
Committee, on a timely basis, any material written communication between the
Auditor and Fund management, such as any management letter or schedule of
unadjusted differences;
(e) to discuss the opinion the Auditor has rendered regarding the Fund's
financial statements;
(f) to report all non-audit services that do not require Audit Committee
pre-approval and are provided to certain affiliated persons of the Fund,
including: (1) the Fund's investment adviser or sub-advisers (but excluding
any investment sub-adviser whose role is primarily portfolio management and
is overseen by the investment adviser), (2) the Fund's principal underwriter,
and (3) any entity controlling, controlled by, or under common control with
the investment adviser or principal underwriter, that provides "ongoing"
services to the Funds in accordance with the pre-approval requirements of
paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X (each, a "Covered Affiliate"
and collectively, "Covered Affiliates");
(g) to review, in accordance with current standards of ISB, all
relationships between the Auditor and the Fund or its affiliated persons that,
in the Auditor's professional judgment, may reasonably be thought to bear
on its independence, and to confirm, in light of such information, whether
the Auditor believes, in its professional judgment, that it may properly serve
as independent accountants/auditors with respect to the Fund;
(h) to consider the Auditor's comments with respect to the Fund's financial
policies, procedures and internal accounting controls and responses thereto by
the Fund's officers and Fund management, as well as other personnel;
(i) to investigate any improprieties or suspected improprieties in the
operations of the Fund to the extent necessary or appropriate in light of any
internal investigations by the Fund's officers and/or by officers or employees
of the Fund management of such improprieties;
(j) to receive periodic reports concerning regulatory changes and new
accounting pronouncements that significantly affect the value of the Fund's
assets and their financial reporting;
(k) to report on the Fund's qualification under Subchapter M of the Internal
Revenue Code, amounts distributed and reported to shareholders for Federal tax
purposes and the Fund's tax returns; and
(l) to provide the Auditor the opportunity to report on any other matter
that the Auditor deems necessary or appropriate to discuss with the Audit
Committee.
If the Auditor's report on the above-listed (and other pertinent)
matters is not made in person to the Audit Committee within 60 days following
the end of the Fund's fiscal year, the Auditor shall deliver a written report
to the Audit Committee concerning these matters within such 60 day period.
3. Change in Accounting Principles. The Audit Committee shall consider
the effect upon the Fund of any changes in accounting principles or practices
proposed by the Auditor or the Fund's officers.
4. Pre-Approval of Audit Related Services and Permissible Non-Audit
Services. The Audit Committee shall pre-approve both audit (including audit,
review, and attest) services and permissible non-audit services provided to
the Fund and, if the nature of the engagement relates directly to the
operations and financial reporting of the Fund, permissible non-audit services
provided to any Covered Affiliate.
The Audit Committee may determine to delegate the authority to grant
pre-approvals to one or more Audit Committee members, each acting on behalf
of the Audit Committee. In this event, the member of the Audit Committee so
delegated shall report each delegated pre-approval to the Audit Committee at
its next regularly scheduled meeting. The Audit Committee may also adopt and
follow, in lieu of explicit pre-approval described above, written policies
and procedures detailed as to the particular service, designed to safeguard
the continued independence of the Auditor, consistent with the requirements
of the Act and SEC regulations thereunder.
Notwithstanding the foregoing, the pre-approval requirement concerning
permissible non-audit services provided to the Fund or any Covered Affiliate
is waived if: (1) the aggregate amount of all such non-audit services provided
constitutes no more than five percent (5%) of the total amount of revenues paid
to the Auditor by the Fund and the Covered Affiliates during the fiscal year in
which the services are provided that would have to be pre-approved by the Audit
Committee, (2) the non-audit services were not recognized as non-audit services
at the time of the engagement, and (3) such non-audit services are promptly
brought to the attention of the Audit Committee and approved by the Audit
Committee or one or more designated members of the Audit Committee prior to the
completion of the audit.
5. Prohibited Activities of the Auditor. The Audit Committee shall confirm
with the Auditor that it is not performing contemporaneously (during the audit
and professional engagement period) non-audit services for the Fund that the
Audit Committee believes may taint the independence of the Auditor.
The Auditor will be responsible for informing the Audit Committee of whether it
believes that a particular non-audit service is permissible or prohibited
pursuant to applicable regulations and standards.
(2) PERCENTAGE OF SERVICES IN PARAGRAGHS (b) THROUGH (d) APPROVED BY AUDIT
COMMITTEE. No fees were charged during 2008 or 2009 for audit related, tax or
other services as indicated in sections (b) through (d) of this Item.
(f) Not applicable.
(g) NON-AUDIT FEES. The aggregate non-audit fees billed by the Auditor
for services rendered to the Registrant, and rendered to Service Affiliates,
for the Reporting Periods were $0 in 2008 and $0 in 2009.
(h) AUDITOR INDEPENDENCE. There were no non-audit services rendered to
Service Affiliates that were not pre-approved.
ITEM 5. Audit Committee of Listed Registrants
The Registrant has a separately-designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the Exchange Act.
The Registrant's audit committee members are: John R. Costantino,
William J. Lucas and Robert P. Quinn.
ITEM 6. Schedule of Investments.
Attached as part of ITEM 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Applicable only to Closed-End Management Investment Companies.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Applicable only to Closed-End Management Investment Companies.
ITEM 9. Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers.
Applicable only to Closed-End Management Investment Companies.
ITEM 10. Submission of Matters to a Vote of Security Holders.
No material changes.
ITEM 11. CONTROLS AND PROCEDURES.
The officers providing the certifications in this report in accordance
with Rule 30a-3 under the Investment Company Act of 1940 have concluded,
based on their evaluation of the registrant's disclosure controls and
procedures (as such term is defined in such rule), that such controls and
procedures are adequate and reasonably designed to achieve the purpose
described in paragraph (c) of such rule.
There were no significant changes in the registrant's internal controls or
in other factors that could significantly affect these controls subsequent
to the date of their last evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
ITEM 12. EXHIBITS.
(a) Not applicable.
(b) Attached hereto as Exhibit 1 and Exhibit 2 are the Certifications of
Michael J. Cosgrove and Scott Rhodes as principal executive officer and
principal financial officer, respectively, as required by Rule 30a-2 under
the Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the Registrant has duly
caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GE INVESTMENTS FUNDS, INC
By: /S/MICHAEL J. COSGROVE
Michael J. Cosgrove
Chairman, GE INVESTMENTS FUNDS, INC.
Date: March 24, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
By: /S/MICHAEL J. COSGROVE
Michael J. Cosgrove
Chairman, GE INVESTMENTS FUNDS, INC.
Date: March 24, 2010
By: /S/EUNICE TSANG
Eunice Tsang
TREASURER, GE INVESTMENTS FUNDS, INC.
Date: March 24, 2010
EXHIBIT INDEX
(b)(1) Certifications of principal executive officer and
principal financial officer as required by Rule 30a-2 under the
Investment Company Act of 1940.
(b)(2) Certification of principal executive officer and
principal financial officer as required by Section 906 of the
Sarbanes-Oxley Act of 2002.